Accounting

Accounting

A publicly held retailer is a company whose stocks and shares is owned by the general public and can mostly be traded at the stock exchange. One of these publicly held retailers is the Major Automotive Companies, Inc. whose stock symbol is [MJRC.PK]. It mainly deals in autos, parts & accessories. The company is required by law to keep financial statements, which are detailed records of the financial activities of the business entity. This enables the company’s management to have a detailed observation of the financial position, the general performance of the company, and indications of the occurring changes of the business entity. This information is basically held for decision making purposes and auditing of the books if accounts by the state. One of the numerous financial statements that the business entity keeps is the balance sheet. The balance sheet is a financial statement that outlines the financial position of a company. It highlights all the assets owned by the entity in terms of value, liabilities and shareholders’ equity as at a particular date. This statement of account is usually prepared at the end a financial or a fiscal year (Eisen, 2007).

The balance sheet is divided into two distinct sides, the debit side and the credit side. The basic formula that underlies the balancing of the balance sheet is that the Assets = Liabilities + Shareholders’ Equity. The assets of the company are valuable items that the company can claim ownership. The assets of a company are mainly divided into the current assets and the non-current assets. The current assets are those that can be converted into monetary terms or liquidated quite easily and are listed in the balance sheet in the order of increasing liquidity. Typical current assets include cash, cash equivalents, short-term investments, marketable securities, prepaid expenses, accounts receivable, inventory and the portion of prepaid liabilities which will be paid or that could be converted to cash in less than one year, also includes non-restricted bank accounts and checks. Cash equivalents are the very safe assets that can be easily liquidated, usually in less than a year. A good example of the cash equivalents are the US treasuries (McLaney & Atrill, 2007).

Accounts receivables on the other hand are the short-term obligations that other clients owe the company. Their payment period is restricted to less than the fiscal year. They can be described as the credit sales that the company has made to its clients and customers and are obliged to make the necessary payment in less than a fiscal year. The inventory listed under the current assets is the raw materials, work-in-progress goods – which are the unfinished products, and the company’s finished goods. The fixed or no-current assets are those assets that cannot be easily liquidated. The process of liquidating these assets is expected to last for more than one fiscal year. The fixed assets range from tangible assets such as land, premises, machinery etc. the intangible fixed assets include, goodwill, patents or copyright. Most of these assets undergo depreciation and they must be indicated on the balance sheet, usually against the asset.

The liabilities on the other hand are the financial obligations that the business entity is owing to other businesses or parties. They are all the debts that the company has incurred during its life. Shareholder equity is the amount of capital that the shareholders or owners of the company have invested into the business entity. The types of current assets listed by the Major Automotive Companies, Inc. are the cash and cash equivalents, net investment in direct financing leases, accounts receivable, inventories, due from related parties and other current assets. More information on the current assets can be found on the respective current asset accounts. Each asset has a journal entry on its account or journal. The current assets that a business entity has are crucial as they enable for the evaluation of the business entity’s financial position and the provision of information concerning the company’s operational efficiency. The complex issues relating to current and long-term assets include the sale of the asset, accounting for their depreciation while taking into account their useful life, adjustments to original cost, useful life of the asset, salvage value and the final liquidation of the asset (Minbiole, 1998).

References

Eisen, P. J., (2007). Accounting: Barron’s business review series. Hauppauge, NY: Barron’s educational series.

McLaney, E. & Atrill, P. (2007). Accounting: An Introduction. Washington, DC: Financial Times Prentice Hall.

Minbiole, E. A. (1998). Accounting principles I: Cliff’s quick review. Hoboken, NJ: John Wiley and Sons.