Subject: Management Uses in Accounting
Student: Evelyn V Sulit ( SID) 2303864 Submission Date: 18 July 2024
Understanding Financial Statements
Activity:
1. What is the importance of financial statements? As student, what do you think do you
consider the most priority in finances and make your own analysis?
2. As owner or Manager, do you agree that Financial Statement are open to show in
public or to its employees?
3. Explain the limitations of financial statement analysis?
1. What is the importance of financial statements? As student, what do
you think do you consider the most priority in finances and make your
own analysis?
The purpose of financial statements is to allow businesses to understand their
financial standing. This provides a summary of previous financial data which can
help businesses to make informed decisions. This data can also inform other
individuals or companies which may potentially have a stake in the business. It can
help to provide insight to indicate a company's financial position at a given point in
time or help to forecast upcoming sales.
As a experienced professional and now a student, individual priorities vary. I will
ensure to revisit these variables and assess my situation, set clear goals from one
milestone to another, and adapt as needed. Financial well-being is a journey, not a
destination. I would enlist the following points:
1. Emergency Fund
Priority
o Establish an emergency fund. Aim for 3-6 months' worth of living
expenses.
Analysis
o Having a safety net ensures you can handle unexpected expenses
without going into debt.
2. Debt Management
Priority
o Tackle high-interest debt (credit cards, payday loans) first.
Analysis
o Reducing debt frees up cash flow and improves financial health.
3. Investing for Retirement
Priority
o Contribute to retirement accounts (e.g., 401(k), IRA).
Analysis
o Early investments compound over time, securing your future.
4. Budgeting and Tracking Expenses
Subject: Management Uses in Accounting
Student: Evelyn V Sulit ( SID) 2303864 Submission Date: 18 July 2024
Priority
o Create a budget and track spending.
Analysis
o Understanding where money goes helps optimize savings and reduce
waste.
5. Insurance Coverage
Priority
o Ensure health, life, and property insurance.
Analysis
o Protection against unforeseen events is crucial.
6. Long-Term Goals
**Priority**: Save for major life goals (education, home, travel).
**Analysis**: Align financial decisions with aspirations.
2. As owner or Manager, do you agree that Financial Statement are open to show in
public or to its employees?
As an owner, if my business is a sole ownership and not publicly listed – I will not
open to public not to my employees my Financial Statement. I do not have financial
obligations to let everyone knows my transactions nor how I manage the business
specially like when it is a small enterprise. If my business step up to medium
enterprise where I have management team already – part of the team will know bits
of the finances and matters relating to perhaps investors if there will be any. But
regular employees in the rank and file need not to know how the business
transactions are doing. They only need to be reassured that the business do well
and that they received their compensation and bonuses and other perks.
3. Explain the limitations of financial statement analysis?
Financial statement analysis is a valuable tool for assessing a company's health and
performance. Understanding these limitations helps stakeholders interpret financial
statements wisely and consider additional sources of information when making
financial decisions. No single tool provides a complete picture; a holistic approach is
essential. Here are some of the limitations poses in financial statements and its
analysis:
1. Data Quality and Manipulation
Issue
o Financial statements rely on accurate data. Deliberate manipulation or
errors can distort the analysis.
Impact
Subject: Management Uses in Accounting
Student: Evelyn V Sulit ( SID) 2303864 Submission Date: 18 July 2024
o Conclusions drawn from unreliable data may mislead investors and
stakeholders.
2. Standalone Analysis
Issue
o Financial statements provide isolated snapshots. They don't consider
external factors or industry benchmarks.
Impact
o Context matters; relying solely on financial statements may miss critical
insights.
3. Historical Figures
Issue
o Financial statements reflect the past. They don't predict future
performance.
Impact
o Investors need forward-looking information for better decision-making.
4. Assumptions and Estimates
Issue
o Financial statements involve estimates (e.g., depreciation, bad debts).
These assumptions can be subjective.
Impact
o Variability in estimates affects the accuracy of ratios and conclusions.
5. Timeliness
Issue
o Financial statements have reporting delays. By the time they're available,
circumstances may have changed.
Impact
o Real-time decisions require more up-to-date information.
