FR U1DB2 initial

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1.
A balance sheet statement shows the financial position of a given company by showing a summary of the capital, liabilities, and capital for a specific date. A balance sheet date refers to the date of information entry in a statement. Cash flow and Income Statement are the financial statements used to describe the difference between two balance sheet dates.
2.
Income statement gives the financial performance of a company for a given period (Abernathy & John, 2017). It contains revenue, tax expense, profit or loss after tax and the total comprehensive income. Cash flow statement gives a summary of the amount of cash generated and used for a given period. When doing the accounting for a company, the double entry system is applied. This means that when there is an increase in the sales of a company, it will appear on the balance sheet, which shows an increase in assets. Therefore, the income statement and cash flow statements show the disparity between two balance sheet dates.

3.
I disagree with the statement. The estimates are meant to increase the accuracy of financial statements (Farhi, Emmanuel & Jean, 2016). The management of a company is required to make estimates that affect the liabilities and assets amounts reported. Policies require that companies use estimates in the preparation of financial statements at a given date. Estimates do not render financial statements not useful because they have a reliable basis from past activities.

4.
The use of estimates is ethical in accounting. The estimates made by the management to prepare financial statements are usually based on previous information about the company. Accepted accounting principles applied when making estimates help in maintaining financial ethics (Cowton, Christopher & Yvonne, 2015). The management of a company is required to uphold the integrity of the financial reports. Companies to make projections and make plans for their future economic standard use estimates. The actual outcomes may differ from the estimates. However, it is not unethical for companies to use estimates in their financial statements.
Work Cited
Abernathy, John L., et al. “Income statement reporting discretion allowed by FIN 48: Interest and penalty expense classification.” The Journal of the American Taxation Association 39.1 (2017): 45-66.
Cowton, Christopher J., and Yvonne Downs. “Heated debates and cool analysis: thinking well about financial ethics.” Routledge, 2015. 439-452.
Farhi, Emmanuel, and Jean Tirole. Deadly embrace: Sovereign and financial balance sheets doom loops. No. w21843. National Bureau of Economic Research, 2016.