Financial Accounting Essay Example

Financial Accounting

Australian Accounting Standard AASB 119 Employee Benefits highlights the aspects of accounting that is related to the long service leave and annual leave (Treasury Circular, 2015).This is applicable to all the agencies that are required to prepare a general purpose financial report. The long service leave is measured as the present value of the estimated future cash outflows that has to be made by an employer. The long service leave is considered a liability in the financial statements. However, due to its nature and ability to generate other on-cost factors, it has to be reported separately from the other expenses such as salaries and wages. The separate reporting is useful in ensuring that it can be easily identified and separated in the consolidation financial statement. In some of the instances, the employers may receive reimbursement from different schemes or agencies. This is common when dealing with the industry based long service leave schemes (Treasury Circular, 2015). In order for this expense to be clearly identified during the reimbursement, it has to be recognized separately. The long service leave is recognized as liability for the employers even when it is considered as part of the industry based long service scheme. The short hand measurement technique is commonly used during the estimation process. The long service leave is thus a form of unique type of expense as compared to other expenses.

The suggestion by the accountant is in accordance with the AASB principles. It is therefore important for the company to act in accordance with the suggestions of the accountant. Although the long service leave is an expense, it should not be treated as the other types of expenses due to its uniqueness. This does not complicate the issues but instead tries to ensure that the expense is better accounted for and easily identified. The cost factors that are related to the long service leave can be identified when this expense is treated differently (AASB, 2011). The company will be better placed to account for the expenses associated with the long service leave as well as the needs of the employees. The company will be at a better position to apply for any reimbursement related to the long service leave incase it is treated in a different manner. Treating the long service loan is useful in enabling the organization to respond better to the issues of taxation in relation to the revenue and expenses. It is important for the organizations to ensure that their practices are in compliance with the AASB regulations (AASB, 2011). The employees will also benefit from the proposal by the accountant as the organization will be able to make accurate calculations and accounting related to the long service leave.

Recording the net amount received as sales would greatly simplify the matters for the organization. The sales revenue is considered as the amount realized from the sale of goods and services during the normal operations of accompany in a specified period (Jiang & Penman, 2013). The recording of the sales revenue in the financial statement is an important aspect that is used to determine the performance of the organization. The arrangement that the company has made with the retailers is quite simple and the company can easily account for the expenses incurred as well as the revenue generated. It will be possible for the company to ensure that it accounts for all the revenue generated from the sales through the use of this method. The process will also be simple for the company in terms of ensuring it is not involved in the complex accounting calculations related to the expenses as well as other cost associated with the sales. This is considering the retailers will be able to handle all the aspects related to the sale of the products. The proposal will be beneficial to the company as the only entry that the company will be required to make is the sales revenue. The retailers will be directly involved in the process of determining the expenses associated with the sales as they will be handling the process in accordance with the agreement.

The retailers will be paid $ 600 according to the agreement. The amount is adequate in terms of catering for the needs of the retailers. The management of the accounting records is a complex process when more details are required (Warren &Young, 2011). The company will however be required to develop an inventory record so as to monitor the products that have been sold as well as the remaining stock. The availability of such records will enable the company to clearly establish what has been sold by the retailers and the amount generated. High levels of accuracy will also be maintained by the company through process and hence promoting accountability. The agreement that the company has made with the retailers is part of the business process aimed promoting the sale of its products. This means that the company is indirectly selling its products through the retailers. The retailers are responsible for the expenses involved as they will be paid in accordance with the agreement. The $ 600 provided to the retailers is constant and it can be considered as the cost of selling the products. The proposal will thus simply the operations of the company by ensuring that it is only involved in recording the net amount received as sales revenue.

There is as problem if the company does not account for the Deferred Tax Assets (DTA) and Deferred Tax Liabilities (DTL). This is despite the company being tax compliant and accountable in terms of the current taxes. The deferred tax liabilities and the deferred tax assets have direct impacts on the cash flow of the company for the subsequent years (El-Tawy & Abdel-Kader, 2013). There is a difference between tax accounting and financial accounting rules. This means that the revenue and expenses reported in the income statement does not necessarily translate to income and the deductions for taxation purposes. The taxable income for the businesses is different from the net income in the financial statement. It is for this reason that DTA and DTL have to be clearly identified and differentiated. Accounting for the current tax liability alone has negative impacts on the future cash flow of the company. There are temporary as well as permanent differences in terms of what needs to be taxed. The effects of such differences may not be determined if the DTA and DTL are ignored. This may have future negative impacts on the cash flow of the organization. The recognition of the income as well as the expenses in relation to the taxes cannot be recognized immediately. This is because of the timing involved which is an important aspect that can only be identified through the use of DTL and DTA aspects (El-Tawy & Abdel-Kader, 2013).

The aspects of depreciation are treated differently under the financial and tax laws. In order to deal effectively with the aspects of depreciation and appreciation DTA and DTL has to be considered (West & Carnegie, 2010). The temporary timing differences are responsible for the creation of DTA and DTL. This has the ability of providing detailed information to the organization about the possible future deductions. The deferred tax asset is usually used to determine a positive cash flow. The deferred tax liabilities are used to indicate future cash flow. The financial picture of the business can be displayed better when the DTA and DTL are incorporated (West & Carnegie, 2010). The use of information about the current taxes is not adequate in terms of providing the information about the financial future of the company. DTA and DTL are also vital in terms of dealing with aspects of net losses as well as the future cash flow of the organization. The deductions from the income as well as the balance can be made effectively through the involving the aspects of DTA and DTL. Although the aspects of DTL and DTA may seem complicated for the company, it has long term future benefits and hence the need for continued utilization.

Bibliography

The Treasury, New South Wales Government.Accounting for Long Service Leave and Annual Leave. Treasury Circular., 2015.

Australian Accounting Standards Board.AASB., 2011. Employee Benefits.

Jiang, G, & Penman, S., 2013. A fundamentalist perspective on accounting and implications for accounting research, China Journal of Accounting Research, 6(4), 233-245.

Warren, D, L. and Young, M. N., 2011. Integrated accounting principles: A best practices course for introductory accounting. Issues in Accounting Education, 27(1), 247-266.

El-Tawy, N. and Abdel-Kader, M., 2013. Accounting recognition of information as an asset. Journal of Information Science39(3), pp.333-345.

West, B & Carnegie, G 2010. ‘Accounting’s chaotic margins: financial reporting of the library collections of Australia’s public universities, 2002-2006’, Accounting, Auditing and Accountability Journal, vol.23, no.2, pp201-228.