Abstract
The financial accounting requires management of different accounts related to assets, liabilities, and equity. On the asset side, it could be noted that all companies report current and non-current assets. Managing of current assets is crucial in the short term as they affect the company’s operations. Companies need to have sufficient working capital to avoid disruptions in their routine operations. Too much or too less working capital both have implications for businesses. Therefore, it is important for companies to have an optimal level of working capital that could help them manage their operations efficiently and effectively. From the analysis, it could be indicated that Apple has huge case reserves that have not been invested in profit-generating businesses or projects. The strategy of the company has been to build on reserves for several years and now it is making investments in diversifying projects and companies to expand its business. Moreover, companies which operate through their subsidiaries need to prepare their financial statements on a consolidate basis that requires elimination of all intercompany transactions including assets, debt, revenues, expenses, and stock ownership.
Two key areas in financial accounting have been covered in the given tasks. One is related to working capital management and the other one is preparing consolidated entries and recording of intercompany transactions. It is learnt that working capital strategies of companies have an impact on their liquidity position. However, it must also be understood that same or similar working capital strategies do not generate the same results. In case of retail companies, they need to hold a large quantity of inventories for selling. In such companies, the value of working capital ratios is low. The strategy of Apple has proved to be successful as it helps the company to invest a significant proportion in R&D. However, some may argue that holding such large amount of cash could raise concerns for shareholders as they may require this amount to be invested in profit generating projects. I have also learned that if companies do not have sufficient working capital then it could affect their ability to fund their operations by their internal equity and they have to borrow in short and long terms to avoid financial difficulties and problems.
Another key area of learning is related to the intercompany transactions. Many companies operate through their subsidiaries. These subsidiaries perform different business functions that are linked with the primary business function of the parent company. Transactions taking place between the parent company and subsidiaries could involve intercompany debt, intercompany revenues and expenses, and intercompany stock ownership. It could be difficult to trace these transactions and companies are required to maintain control documents for these. However, they need to be eliminated upon consolidation to avoid double effect.
It could be concluded that different companies have varying working capital strategies and in order to understand their motive and effects the nature of business must be understood. Furthermore, the market analysis has to be done to assess the working capital strategies. The area of development related to this could involve analyzing working capital strategies of companies in the same industry or different industries. Moreover, consolidation accounting could be further studied related to mergers and acquisitions and treatment of goodwill in the company’s financial statements.
References
Fischer, P., Tayler, W., & Cheng, R. (2007). Fundamentals of Advanced Accounting. Mason, OH: Cengage Learning.
Garg, M. (2015). Working Capital Management. New Delhi: Educreation Publishing.
Sagner, J. (2011). Essentials of Working Capital Management. New York: John Wiley & Sons.
