Finance

Generally Accepted Accounting Principles (G.A.A.P)
GAAP are basically accounting rules which are utilized in the preparation, presentation and reporting of an entitys financial statements. It can serve a wide variety of entities which range from privately owned entities to publicly owned enterprises. GAAP includes the accounting framework, local accountancy law and accounting standards.

GAAP incorporates some important principles which are key towards efficient financial reporting and are as follows
Consistency A company is required to adopt the same accounting assumptions and methods from one period to another in order to ensure consistency in financial statements.  This can help users in developing a pattern and assist in decision making.

Relevance Under this concept an entity is required to report appropriate information which is holds relevance to users in their decision making.

Reliability This requires an entity to ensure that the information given is reliable and can be verified by an independent third party. Users of an entity can make accurate decisions if the information provided in reliable and bonafide.

Comparability This ensures that the information provided in an entitys financial statements is comparable with those of other entities. This is crucial in order to facilitate users to compare financial information of their entity with those of other entities (Epstein, Nach Bragg. 2007).

Historical Cost
Under the historical cost concept an asset is valued at the cost at which it was purchased or acquired. Once an asset is stated at historical cost it is not restated owing to any changes (either an increase or decrease) in its market value.

Using the historical cost as a measurement method is important for financial reporting purposes probably because they are quite straightforward and easy to produce. Furthermore historical cost concept is extensively used among many other accounting conventions.

Accruals accounting vs. Cash accounting
Under the accruals basis of accounting economic events (income or expense) are recognized once rewards or obligations have been transferred irrespective of when the cash payment is made or received. The underlying concept is based on the matching principle according to which revenues are matched to expenses. Cash basis accounting on the other hand is of the view that economic events should only be recognized once the exchange of cash has been made.

Accruals accounting is the standard practice when preparing financial statements probably because it accurately deals with the complexity of business transactions. In case of a seller it is appropriately reflective of his or her revenue. Furthermore it presents the revenue earned or the expenses incurred in the income statement on a more even basis from period to period and hence intend to overcome any significant fluctuations in the profit figures from one period to another which is usually the case with cash basis of accounting (Wood. 2005).

Current assets and liabilities vs. Noncurrent assets and liabilities
Current assets are those assets of an entity which will be converted to cash within the next 12 months similarly current liabilities are the obligations that an entity will have to fulfill in an accounting period. Noncurrent assets and liabilities on the other hand are retained by an entity for more than one period and are focused on the long term prospects of the entity.

Current assets in the financial statements should be more than the current liabilities so that the business can not only payoff its obligations on time but also has surplus cash to fulfill the day to day working capital needs. Both current assets and current liabilities represent the liquidity position of an entity and the greater the amount of current assets over current liabilities the better the liquidity.

Non-current assets are an important figure on the balance sheet and it is recommended that they are greater than non-current liabilities, probably because it will keep the financial leverage within limits. Not only an appropriate amount of noncurrent assets will help retain the existing investors but will also help in obtaining long term credit since lenders will secure their debt on the companys assets. Nevertheless both noncurrent assets and liabilities are important figures on the balance sheet since they determine an entitys future in the long run.

Part II
Johnson and Johnson

Johnson and Johnson has seen increase in both its assets and liabilities for instance total assets have increased from  80 million in 2007 to  84 million in 2008 however this increase is reflective of the increase in current assets, non-current assets have remained at almost the same levels. Similarly total liabilities have also surged from  37 million in 2007 to  42 million in 2008.

Net income saw an improvement of 19 over last year from  10,500 million in 2007 to  12,500 in 2008. On the other hand cashflow from operating activities have slumped a little in 2008 when compared to 2007 which is due to the increase in receivables and inventories and a significant decrease in payables. Hence net income is more useful as compared to cashflow from operating activities when determining Johnson  Johnsons performance (Johnson  Johnson. n.d).

Johnson  Johnson has shown stable performance during the year and it seems possible it will see further improvement in the coming years.

Lockheed Martin

Lockheed Martin has seen mild improvement over the last year. Total assets have increased from  28 million in 2007 to  33.5 million in 2008 which accounts for a 20 whereas total liabilities have increased considerably from  19 million in 2007 to  30 million in 2008. In fact current liabilities have become almost equal to current assets in 2008 hence bringing Lockheeds liquidity into jeopardy.

Net income has slightly increased over the net earnings figure in 2007. Similarly, cashflow from operating activities has also increased in line with the net income. Since net income and operating cashflow both have increased accordingly it would be better to use net income for assessing Lockheeds performance (Martin. n.d).

Lockheed has only shown a mild improvement over last year moreover its liquidity is touching dangerous levels and therefore it seems that Lockheed might eventually go into losses in future.

Samsung

Total assets of Samsung have increased from  74 million in 2007 to  83 million in 2008. Total liabilities on the other hand have increased  29.8 million in 2007 to  33.7 million in 2008. Current liabilities accounted for a major part of Samsungs liabilities. Net income for the period ending 2008 was  4.9 million which was significantly below the net income in 2007 ( 6.3 million). Cashflow from operating activities was almost the same as in 2007 with an approximate cashflow  14.3 million. Samsung has managed to sustain its cashflow owing to increase in trade payables therefore the net income seems a more appropriate measure when assessing Samsungs performance (Samsung Electronics, n.d).

Samsung has already received a setback in 2008 when its net income dropped by 29 from 2007. Moreover its cashflow position is moderate at best and profits continue to decrease in the coming years then Samsung apart from poor profitability might also face a liquidity crisis.