Financial Analysis: Comparative and Common Size Statements
Comparative Financial Statements
A comparative statement in accounting is a financial report that presents the same financial information for two or more reporting periods (e.g., this year vs. last year) side-by-side. This presentation format allows stakeholders like investors and managers to easily:
- Identify trends and patterns in financial performance or position.
- Track a company’s progress or regression over time.
- Calculate the absolute change (difference in currency amount) and percentage change
Corporate Accounting and Statutory Compliance Standards
Introduction to Corporate Accounting
Companies maintain books of accounts to record financial transactions accurately, ensuring transparency and compliance with laws like the Companies Act 2013. These records provide a true and fair view of business operations for stakeholders, auditors, and regulators. They form the essential basis for preparing financial statements, tax filings, and strategic decision-making, with a mandatory retention period of at least eight years from the relevant financial
Read MoreKey Concepts and Definitions in Indian Income Tax Law
Difference Between Gross Total Income (GTI) & Total Income (TI)
The main difference between Gross Total Income (GTI) and Total Income (TI) lies in the deductions allowed under Chapter VI-A (Sections 80C to 80U) of the Income Tax Act, 1961.
Gross Total Income (GTI)
GTI is the aggregate income calculated by summing up the income computed under the five heads of income, after allowing for certain set-offs and carry-forwards of losses.
- Heads of Income: Salary, House Property, Profits and Gains of Business
Tax Accounting Principles: Corporate and Partnership Transactions
Exam 1:
(Extensions → 6 months for everyone)
Chapter 2: Statute of Limitations–
1. Normal → 3 years from later of original due date or date filled 2. Omission of > 25% of gross income → 6 years 3. Fraud and/or failure to file → indefinite Trial courts and where appeals go–
1. Must go through the process (Revenue Agent’s Report (RAR), 30-day letter, informal appeal, and 90-day letter) before going to court 2. The tax deficiency must be paid prior to filing in the Court of Federal Claims
Inventory Valuation and Receivables Accounting
Allowance Method for Uncollectible Accounts
We use the Allowance Method to record estimated uncollectible accounts, which is used to estimate and record expected bad debts. This method ensures that Accounts Receivable (A/R) is stated at Net Realizable Value (NRV) and matches bad debt expense with the related sales revenue.
- Adjusting Entry: Updates the allowance balance to the target ending balance (usually a percentage of A/R or based on an aging schedule).
- Write-Off: Removes a specific A/R from the
Managerial Accounting Formulas: Variance, CVP, ROI & Decisions
Direct Materials and Labor Variances
Direct Materials and Labor:
Materials Price Variance = (AP – SP) x AQ
Materials Quantity Variance = (AQ – SQ) x SP
Materials Spending Variance = MPV + MQV
Labor Rate Variance = (AR – SR) x AH
Labor Efficiency Variance = (AH – SH) x SR
Labor Spending Variance = LRV + LEV
Standard Hours and Standard Cost
Standard Hours and Cost:
Standard Hours Allowed = standard hours per unit x actual output
Standard cost allowed = SQ x SP or SH x SR
Variable and Fixed Overhead Variances
Variable