Mcdonald's Financial Statement Analysis

. Economic Entity Assumption: An economic action can be recognized to a separate entity accountable for that action. In other words, this assumption states that businesses must separate their transactions from their owners’ business or other businesses’ transactions. For instance, the business activities of McDonald's restaurant are to be kept separate from the financial actions of its managers and owners. The financial statements for restaurant will only show the expenses and revenue for the restaurant. Therefore, we can compare the financial statements of this restaurant with its competitors’ reports.

2. Monetary Unit Assumption: assumption states that the financials' statements information should be stated in monetary units. The reason

Matching Principle: states that expenses shouldn't be recognized or recorded when they are paid. Expenses must be recorded as the consistent revenues are recorded. This ties the expenses and revenues in a period. Example: Big Company has sold kitchen appliances for many years in a village. It purchases a large appliance from suppliers for $4,000 and resells it to local customers for $6,000. At the end of the period, this company should match the $4,000 cost with the $6,000 revenue. 8. Revenue Recognition Principle: This assumption states that revenue should be known and recorded when it is realized or attainable and when it is received. Companies don't have to wait until revenue is actually collected to record it in their statements. Revenue must be recorded when the business has earned it. Example:

X person sells a pin-pong table to an entertainment club on January 25th for $3,000. The pin-pong table was not paid for until 3rd February and it was not delivered to the club until 3rd February. According to the revenue recognition principle this person should not record the sale in January. Even though the sale was realizable in that the sale for $3,000 was initiated, it was not earned until February when the pin-pong table was

Consistency: means that the methods of accounting once accepted should be used reliably in future. Moreover, same techniques and methods must be applied for related situations. Ex: Company X has been using decreasing balance devaluation method for its IT equipment. According to consistency concept it must continue to use declining balance depreciation method in respect of its IT equipment in the next periods. If the company wants to adjust it to another depreciation method, it must offer in its financial report, the aim(s) for the change, the nature of it and the effects of it on items.

4. Comparability: is a key element which accounting information should own. Accounting information is similar when accounting policies and criteria are used consistently from one region to another and one period to another. The features of comparability of financial statements are significant because it permits us to compare a group of financial statements with those of previous periods and those of other companies. Ex: We can compare the financial statements of ExxonMobil Company with BP if both are prepared in harmony with same set of accounting