Financial Accounting Concepts Essay Example | Topics and Well Written Essays - 500 words - 5

Financial Accounting Concepts - Essay ExampleThe higher the current ratio the greater is the companys ability to pay its bills. It is in any case a tool which also helps make rational decisions in keeping with a companys objectives. This is the reason why the bank insisted that they maintain a current ratio of 1.5. This would also enable the bank to keep a track on the companys functioning.The accounting principle relevant hither is conservatism. Conservative accounting can only cause temporary increase in the companys earnings. The effect is temporary and the actual may disaccord and hence not considered a good indicator of subsequent earnings. Conservative accounting would raise questions about not only the balance sheet precisely also about the income statement. Accounting conservatism only helps to reduce disclosure.According to me it would he unethical to record the revenue of the new sales contract in December. It is always advisable to be honest with the bank because the r elation with a bank is a long-term one. If the bank found out on its throw it would reflect badly on the company and then the bank would be very cautious in all future transactions also. Manipulation may not be intended by the company but banks would be cautious in all future reporting by the company case they found out.If the company records this revenue in December the current ration would increase. They could complete the contract in December itself and raise the bill. Once the bill is raised, whether they put one across cash for it or it remains as current receivables, the current ratio goes up. In this case there is nothing wrong. But as can be seen it is already the 15th December. Would it be possible to complete the contract within this period? Besides, credit has to be given to the party so cash payments cannot be expected.But in the event that the contract is executed in January and considered in December just for the sake of reporting, it would be a false