External financial accounting aims towards external recipients such as inventors, business partners, legal & tax authorities, banks, employees, etc. It is the mandatory accounting of all assets, liabilities, equity, revenues and expenses as required by law. Its main components are book-keeping and financial statements. The accounting object is the company, in some cases with segment reporting in the attachment to the financial statement. Timeframe is usually annual.
Financial accounting objectives are documentation of measurable economic events in units of money / information of business partners / controlling of liquidity, profitability and sufficient equity / planning & budgeting of investments decisions
Linear dep.: 9 / 41,32,23,14,5
Declining dep.: 15,10.5,7.35, 5.145, 3.601.5 / 35, 24.5,17.15,12.005, 8403.5
Unit of activity: 9,13.5, 6.75, 11.25, 4.5 / 41, 27.5, 20.75, 9.5, 5
book entry: depreciation / equipment
A depreciation expense has a direct effect on the profit that appears on a company's income statement. The larger the depreciation expense in a given year, the lower the company's reported net income - its profit. However, since depreciation is a non-cash expense, the expense doesn't change the company's cash flow.
(i)bulk materials kept in silos→ FIFO
(ii)perished good→ FEFO (iii)to bring forward external turnover → KIFO
A company using FIFO to value its inventory reports lower COGS, which increase its gross profit margin and its net income all else being equal. Higher net income means higher profit margin. FEFO allows the company to garuantee product quality. In turn, leads to another benefit - customer satisfaction and a boost in reputation. FEFO also allows the company to avoid dead stock.