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Financial Accounting Assignment
Bachelor of Business9/4/2015
- Context and purpose of financial reporting
- Characteristics of the financial information
- Accounting cycle and double entry
Medica is a multispecialty hospital providing outpatient services, advanced diagnostic service, preventive healthcare. The vision is to provide reliable and quality health care services, the Hospital offers a series of preventive programs, important diagnostic services through its modern facilities and surgical services in a variety of areas.
For the first time in the Maldives the Hospital provides day surgery services in areas including General Surgery, Orthopedics and Gynecology performed under general and local anaesthesia. Other surgical operations may also be undertaken on a case-by-case basis. Medica’s facilities include a state-of-the-art pharmacy, X-ray and ultrasound scanning services and laboratory facilities, minor procedure rooms and a day surgery unit consisting of theatre, day surgery suites, pre-ops and post-ops wards.
Regular outpatient services are offered in a variety of medical areas and highly qualified, experienced doctors and professionals who are full-time staff of the Hospital provide services at the Hospital.
Medica is established with the aim of providing reliable and quality health care services merging patient care with expertise to provide.
Context and purpose of financial reporting.
Financial reporting is important to every business. Financial statements provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions. It provides useful information to wide range of users such as managers by helping them to manage the affairs of the company by assessing its financial performance and position and taking important business decisions. Moreover shareholders are able to assess the risk and return of their investment in the company and take investment decisions based on their analysis.
In addition, financial reports helps the business to identify the number of customers who consulted and the money generated from the each memo they made, the expenses incurred for the water bills, current bills, rent and other expenses. These transactions are first recorded and analyzed in the books of prime entry and then the totals are posted to the ledger accounts. Finally, the transactions are then summarized to the financial statement. All the transactions are recorded in a software called “Tally” in Medica.
When the transactions such as the daily cash reports, credit notes and point of sales are entered in the Tally then only they will know how much sales they have made in each day and the amount of money that has to be deposited in the bank in that day. By keeping these records the business would be able to know whether they will be getting a profit or loss in that particular year ending. Therefore this helps the company to measure the income, expenditure and the profit.
Characteristics of the financial information
Financial information presented infinancial statementsneeds to have some key qualities which make it useful for the users. Therefore the following characteristics are used in Medica when making financial information.
Relevance: Relevance requires financial information to be relevant to the decision making needs of the users. For example in Medica if net income and its components confirm investor expectations about future cash-generating ability, then net income has feedback value for investors. This confirmation can also be useful in predicting future cash-generating ability as expectations are revised.
Materiality: in this it requires accountants and auditors to focus on financial information which is expected to affect the decisions of the users.
Comparability: In this the users would be able to compare the financial information across periods and companies. For eg: by having the financial information managers of Medica would be able to plan and set objectives to compete with its competitors such as IGMH and ADk hospital. Moreover, by looking at the financial information the investors of Medica and creditors such as Med lab will compare information across companies to make their resource allocation decisions.
Reliability: The accounting information that is presented should be trustful, accurate, complete and capable of being verified such as potential investor. The information the business gathers must be able to depend on. For instant, an employee brings information to Medica saying about the competitors such as ADK is claiming that they are going to decrease the price of dental procedures or radiology tests in order to compete. Therefore, this information needs to be considered before any actions taken.
Understandability: This means the financial information has to be understandable by users with reasonable knowledge of business and economic activities. The annual report medica make at the end of their financial year is a good example. In the annual report the performance of Medica is included and conclusion is presented to make it easy for the stakeholders to understand.
Timeliness: requires disclosure of financial information not to be excessively delayed. The information should be available to users early enough to allow its use in the decision
process. For example, the payment vouchers, cheques that Medica receives from Allied insurance, Aaasandha has to be dealt promptly and the transactions has to be made within the time period.
Accounting cycle and double entry.
Accounting cycle is a step-by-step process of recording, classification and summarization of economic transactions of a business. The main steps involved in the accounting cycle are shown below.
- Identify business transactions.
- Analyzing transactions
- Journalizing transactions
- Posting transactions to ledger accounts
- Preparing the trial balance.
- Preparing adjusting entries at the end of the period.
- Preparing adjusted trial balance.
- Preparing financial statements.
- Closing temporary accounts
Every transaction occurred in Medica follows this accounting cycle. In Medica computerized stock management system and daily transactions are created. In addition, summarized transactions are entered in the Tally in separate books.
- Medica paid cash to Aasandha Pvt.ltd
- Analyzing how much of money we paid.
- Recording the transaction in the journal. Such as
Dr Aasandha Pvt.ltd
Cr Sales/ Revenue
- Once the journalized, posting the transaction into ledger accounts. Aasandha pvt.ltd (debtors/ Trade receivables) account debit. And the sales/revenue account credit.
- After posting in the ledger accounts, making the trial balance with the balanced amounts.
- Then preparing any adjusted entries such as Aasandha Pvt.ltd paid half of the money they owed. In this case adjustment needs to be made.
- After that Medica must make the adjusted trial balance.
- Then the amounts in the trial balance are used to make the finale statement.
- Once all the finale statements such as balance sheet and all are done, there must be closing of all the temporary accounts.
In a nutshell, the assignment talked about the purpose of financial reporting, characteristics of accounting information, and the accounting cycle of the business on how it should be and how it is at the business chose for the assignment, Metro medica Pvt.ltd (Medica Hospital)
Medica hospital has been look upon and it can be concluded that they have a great accounting environment following the assumptions all in line.
Retrieved from Metro Medica Pvt. Ltd: http://medica.com.mv/beta/
Mohamed Imadh, Finance manager of Medica , April 2015 (interviewer).
Retrieved from my accounting course, Shaun, 2014, http://www.myaccountingcourse.com/accounting-cycle/