principal and ratio.docx

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Financial Accounting
Course Code
Daga Sandra

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ACCOUNTING PRINCIPALS 1 .Cash versus Accrual basis of accounting 2. Revenue Recognition 3. Matching Principles 4. Business entity concept/ Separate Entity Consumption 5. Materiality 6. Unit-Of- Measure Assumption 7. Continuity( Going-Concern) Assumption 8. Historical Cost principal Ratios Purpose: enhance returns to shareholders 1. debt-to-equity ratio p73 a. debt- to- equity ratio= total liabilities/ shareholders’ equity b. assess the debt capacity: how much is financed by creditors and how much is financed by investors. c. Limits: can only indicate the debt capacity but cannot help investors understand whether the company can support the amount of debt. 2. Total asset turnover ratio p126-127 a. How effective is management in generating sales from assets ( resources)? b. Total asset turnover ratio= Sales ( or Operation) Revenues/ Average Total Assets c. Average Total Assets= ( Beginning Total Assets+ Ending total assets)/2 d. A high asset turnover signifies efficient management of assets. 3. Return on assets (ROA) p133 a. How well has management used the total invested capital provided by debtholders and shareh
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