about advanced accounting

Accounting is a database or accounts for financial transactions that occur in a company. It is essentially the method of summarizing all of these transactions for quick analysis and documentation. They are important because they assist consumers in making organizational decisions. For example, in the case of a company, accounting documents assist consumers (investors, creditors, administrators, and so on) in making financial decisions. This paper would go into land and trust accounting, state and local government accounting, and non-profit agency accounting. It will also discuss partnerships including their formation, operations, termination, and liquidity. Further, the paper will discuss foreign currency transactions and hedging foreign exchange risk and translation of foreign currency financial statements.

Partnerships

A partnership is defined as an arrangement whereby two or more parties enter into an agreement to conduct business or to corporate with the objective of advancing their mutual interests. The parties in the partnership shares profits and losses for the business. They can either share equally or in different percentages based on their agreement. Similarly, all the partners may be involved in the day to day running of the business but in some cases, not all parties are involved. It is worth noting that partners could either be individuals, companies, governments and organizations that have similar interests among others (Ricketts et al. 2006). There are two primary forms of partnerships under the common law. They are; general partnerships and limited partnerships. A general partnership refers to the form of partnership where all the partners are involved in the management of the business. They are all liable for any losses or debts that the business incurs. Limited partnership on the other hand refers to the form of partnership where there are general partners and limited partners at the same time. The general partners manage the day to day running of the business while limited partners on the other hand forego business management and instead bear the limited liability for the business debts. As such, the general partners in this case do not bear an obligation to the partnership debt.

Formation of a partnership

A partnership is formed when two or more people agree to do business together for mutual benefits. The requirements for registering a partnership usually vary from state to state and among different countries. However, for the partnership to come into being there has to be a partnership agreement. The agreement clarifies the relationship that exists between the partners. For instance, it explains the profit and loss sharing percentages, the duties and responsibilities of each partner among other details (Ricketts et al. 2006). Once the agreement has been formed, it has to be submitted to the register of business in the state or country in which the business is being registered. A partner can either join the partnership at the beginning or after the business has been formed. Each of the partners is required to invest a certain capital based on the agreement among all members. It is the capital investment that in most cases is used to determine the profit sharing ratio.

Operations of a partnership

The operations of a partnership are by a great extent similar to those of a sole proprietor business. As a matter of fact, the only difference between a partnership and a sole proprietor is that the former is owned by more than one people while the latter is owned by just one person. The partners agree on the responsibilities and duties of each partner (Ricketts et al. 2006). It is worth noting that these responsibilities also determine the type of partner for the business. Partners are liable for any business liability including taxes and losses. Profits are also shared among the partners.

Termination and liquidation of a partnership

There are a number of reasons that can lead to termination of a partnership. First, it can come to an end when all the partners through a mutual agreement agree to terminate it for various reasons. Second, it can come to an end if one partner decides to withdraw. Third, a partnership can be terminated of one of the partners dies, becomes bankrupt, is insane or is not in a capacity to continue with the business (Ricketts et al. 2006). Upon termination, partners share the assets based on the percentage of their capital contributions. Any profits and losses as well as liabilities are also shared as per agreed ratios.

Accounting for estates and trusts

Accounting for estates and trusts refers to the preparation of accounts for income and principal amounts for either a trust or an estate. Trust in accounting refers to an arrangement whereby one party (trustee) temporarily holds a certain property as the nominal owner for the good or on behalf of a beneficiary. For instance, in the event that a minor owns a property, a trustee is selected to hold that property on behalf since the minor cannot legally own it. The trustee then surrenders the property to the minor when they attain the age of eighteen (Glusman & Ciociola, 2008). Estate on the other hand is a term used to refer to the total value of properties owned by an individual. It is basically the sum of the individual’s personal assets.

Accounting for trusts and estates accounts for allocations of disbursements and receipts. In the event that an individual dies, estate accounts are used to show how their property is shared among the beneficiaries. In the event of trusts, the accounting shows the transfer of properties to the beneficiaries. Any costs or gains incurred are also shown in the account ledgers. All income and expenses on properties are also accounted for (Glusman & Ciociola, 2008). In the case of trust accounts, the accounts are prepared such that they serve the needs of fiduciaries who include trustees and executors. There are no income statements or balance sheets.

Accounting for non-profit making organizations

Non-profit making organizations are organizations whose core business objectives are not to make profits. They are organizations such as churches, youth groups, non-governmental organizations and local chambers of commerce among others. These are organizations which serve in various sectors such as education, religious, social services, sports clubs and health sectors among others. The financial statements prepared for these organizations are statement of financial position, statement of functional expenses, statement of activities and statement of cash flows. The statement of financial position shows the assets, liabilities as well as net assets. The basic formula that is used to prepare the statement of financial position is Assets = Liabilities + Net Assets (Dropkin & Halpin, 2005). The income statement on the other hand shows the expenses, revenue as we’ll as the net income for the organization. Non-profit organizations may apply for tax exemption. However, this is granted based on the activities they conduct.

Accounting for state and local governments

States and local governments are not profit making organizations. Their accounting statements are primarily meant to show the amount of assets, liabilities, income and expenses for the governments. The accounts show how money has been spent by the governments. As such, they record the projects as well as any other expenses that have been incurred by the various ministries and the central government. Any amounts that are not used are recorded in the exchequer account. Generally, the accounts are meant to show the accountability of the government through the assessment of financial condition of the different government sectors and the results for operations (Delaney & Whittington, 2009). They compare the results of the actual financial outcomes with the projected expenditure. Also, they are a requirement as the government is required to comply to finance related Acts and laws.

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Foreign currency transactions refer to transactions that are settled using foreign currency. Different currencies have different values. Therefore, when a transaction is settled using the foreign currencies, there are either losses or gains that are incurred. It is difficult for an accountant to prepare financial statements using different currencies (Epstein & Jermakowicz, 2008). Therefore, all transactions have to be converted to the currency of the home country. In so doing, the account should account for any losses or gains incurred in the transactions in order to properly balance the accounts. In the case of companies that conduct many foreign transactions, they are likely to buy forward currency contract that will guarantee the rates for them in the future (Everingham, Kleynhans & Posthumus, 2007). This is referred to as hedging foreign exchange risk. In the event that the value of foreign exchange increases, such companies will incur a loss since they cannot transact with other values rather than the one contracted.

Translation of foreign currency financial statements

Translating foreign currency financial statements is one of the most challenging tasks for an accountant. This is due to the instability of foreign currency as they keep on changing from time to time. The following steps should be followed in this translation. First, the functional currency for the foreign company should be determined (Ricketts et al. 2006). Second, the financial statement of the foreign company in the case of consolidated accounts is re-measured into the currency of the parent company that will be used for reporting. Third, any gains or losses from the translation should be recorded and included in the income statement.

Summary

The article has discussed the form of business known as partnership. It described the formation and operation of a partnership as well as its termination and liquidation. It has also discussed a few types of accounts that are prepared for different entities. The types of accounts that have been discussed include, accounting for non-profit making organizations, accounting for state and local governments and accounting for trusts and estates. Finally, the foreign currency transactions and hedging foreign exchange risk and translation of foreign currency financial statements have also been discussed.

Conclusion

Accounting is an important aspect of any organization as it helps in keeping records that can be used for different purposes including decision making. Different types of accounts are made for different entities. Also, different activities/sectors have different types of financial statements. In the case of a company that has international operations, foreign exchange transactions should be accounted for. Any gains and losses accrued should be noted and recorded. They are indicated in the income statement of the company.

















References

Delaney, P. R., & Whittington, R. (2009). Wiley CPA exam review 2010. Hoboken, N.J: Wiley

Dropkin, M., & Halpin, J. (2005). Bookkeeping for nonprofits: A step-by-step guide to nonprofit accounting. San Francisco, CA: Jossey-Bass.

Epstein, B. J., & Jermakowicz, E. K. (2008). Wiley IFRS 2008: Interpretation and application of international accounting and financial reporting standards 2008. Hoboken, N.J: Wiley.

Everingham, G. K., Kleynhans, J. E., & Posthumus, L. C. (2007). Principles of GAAP. Cape Town, South Africa: Juta.

Glusman, D., & Ciociola, G. (2008). Accountants' roles and responsibilities in estates and trusts. Chicago, IL: CCH.

Ricketts, R. C., Tunnell, L., Manolakas, T. G., & CCH Incorporated. (2006). Practical guide to partnerships and LLCs. Chicago, IL: CCH.