A company will often need to create financial statements because it can help investors, analysis, and bankers learn more about the financial situation and health of a company. These are mainly created by accountants- whether they are certified or not.
Financial statements are important because aside from learning the financial status of the company; it is also created in a standardized manner because accountants follow certain guidelines that will help them record assets, liabilities, sales, and expenses in a certain way that other people can follow.
Small businesses are notorious for having discrepancies and that is due to the fact that the fiscal year and tax year are different. This results in misrepresentation, especially when it comes to the information that is stipulated in the financial statements.
To help avoid this, accountants would rely on Generally Accepted Accounting Principles or GAAP to help account for company inventory and depreciation.
Accountants are needed by any company, which makes accounting and business services in Malaysia so appealing to get by business owners.
Accounting for Depreciation
When you hear the word, “Depreciation”, what usually comes to your mind? Well, in the business sense, the term is often used to denote that a certain asset’s value goes down at a certain period of time.
Depreciation in business is a non-cash expense. This means that there is no cash used in the transaction or when recording the company’s income statement.
Currently, there are three main ways to estimate depreciation values: The accelerated method, the straight-line method, and the modified accelerated cost recovery system or MACRS.
Straight-line depreciation is often calculated by the salvage value of an asset minus the purchase price of the said asset and then diving the useful life of the asset.
The accelerated method of depreciation is just a multiple of the previous method. So for instance, if the straight-line depreciation is set at $100, the accelerated depreciation value may be set at $200. The latter is mainly used to denote faster depreciation of assets in the beginning of their useful life.
Accounting for Inventory
Inventory valuation plays a crucial role in creating financial statements as it can help change the way both the income statement and balance sheets are recorded.
The Internal Revenue Service does not allow an organization to use just one inventory valuation method, which is why you need to be aware of the different types.
Last-in, First-out or LIFO assumes that the recently acquired asset should be the first one to be sold. FIFO or First-in, First-out assumes that the product that is purchased first, should be sold last.
Whenever the prices of certain products rises, FIFO is a method that values the prices of goods sold lower than what is stated in the inventory and this entry will be the one to be stated in the balance sheet.