This module will develop your understanding of the framework for financial accounting, and enable you to reference Accounting Standards and pronouncements and apply your knowledge to various practical scenarios, including a comprehensive case study, which integrates the various units. The company went under for a variety of reasons: investment disasters; non-existent cash in bank; fake transactions; hidden debts and the use of derivatives and accounting fraud to hide these facts. These illegal acts were carried out worldwide, and they affected not only the company and its people but international financial institutions, as well. In 2002, it was found out that the company engaged in fraudulent accounting practices resulting to the inflation of its revenues generated from its deals with Enron. They utilized improper accounting practices to cover up the misuse of these funds.
The scandal here is not in Madoff, himself (although he would have engaged in improper accounting practices to hide the fraudulent scheme), but on how such scheme escaped the watchful eyes of the auditors and the regulators. The accounting fraud in this case involves overstating cash ($1.5 billion) and receivables by $100 million and understating liabilities by $250 million. It shook up not only the accounting world but also threw light on business malpractices in general.
It is so surprising how we are really engaging in these scandalous activities,most recent one theLehman Brother’s use of REPO 105 TRANSACTIONS to improve its leverage position at financial reporting period ends. Essentially accrual accounting is recording your income and expenses when they occur, while cash accounting is recording your income and expenses when money changes hands. Management accounting is a tool to help companies compete better in the marketplace.
You can see the advantage of using accrual accounting to keep track of your credit card expenses; In fact, you may even be doing this already. You can use the idea of accrual accounting to pay reoccurring bills that aren’t due every month like your car insurance. You can use accrual accounting principles to set aside a portion of the bill every month so that when it comes time to pay, you have enough money on hand.
You can even use accrual accounting to prepare for future non-fixed expenses like holiday shopping, a vacation or a future car purchase. The key to using accrual accounting in your personal finances is to look at your budget sheet and not at how much money is actually in your bank account. Balance sheet – is designed to show an organization’s overall financial worth at a given point in time.