Essay about Generally Accepted Accounting Principles and Balance Sheet
Submitted By hyhll
Words: 1096
Pages: 5
Chapter One
Accounting and the Business
Environment
What is Financial
Accounting?
Financial Accounting: The process of identifying, measuring and communicating economic
(financial) information about a company, primarily to investors and creditors (existing or potential). Content of Financial Reports
The Management Letter
The Financial Statements:
Balance Sheet
Income Statement
Statement of Shareholders’ Equity
Statement of Cash Flows
The Footnotes
The Auditor’s Report
3
The Management Letter
The management letter is the statement of management to the investors.
It indicates:
management is responsible for the preparation and content of the financial report. the statements were prepared in accordance with generally accepted accounting principles
(GAAP).
the company maintains a system of internal controls to safeguard assets.
4
The Financial Statements
Include a balance sheet, income statement, statement of shareholders’ equity, and a statement of cash flows (discussed in a later chapter). The footnotes to the financials are considered an integral part of the financials, and explain many of the policies and assumptions used to prepare the financials.
5
6
The Auditors’ Report
The auditor indicates:
That the financial statements are the responsibility of the management. That the auditor has performed the audit in accordance with the standards of the Public Company Accounting Oversight
Board (PCAOB). whether the financial statements are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and whether they represent the financial position of the company fairly.
The auditor has access to all financial records of the company. The Auditor
(Continued)
Most audits result in clean opinion which indicates that based on their assessment the financial statements are prepared according to GAAP.
Some other possibilities are:
Qualified opinion: These arise if one auditor does not perform the complete audit, or if there are some uncertainties regarding the valuation or realization of certain assets or liabilities.
Adverse opinion or disclaimer of opinion: The auditor is unable to express an opinion about the overall fairness of the financial statements. Accounting Principles
Accounting Principles
10
Accounting Principles
(continued)
11
Information in Financial
Statements
Financial statements comprise of the following:
Balance sheet.
Income statement
Statement of cash flows.
Statement of Shareholders’ Equity.
Notes to the financial statements.
The Balance Sheet
How much is the company worth?
The balance sheet reports the financial position at a point in time (end of the quarter or year).
The components of the Balance Sheet are:
Assets
Liabilities
Shareholders’ (Owners’) Equity
13
The Balance Sheet
Assets and liabilities are listed in order of liquidity.
Current vs. Non-current items
The balance sheet is represented by the fundamental accounting equation:
Assets
Current assets: Cash and other assets a company expects to convert into cash, sell, or consume either in one year or in the operating cycle, whichever is longer.
Cash and cash equivalents
Short-term investments
Accounts receivable: Claims held against customers and others for money, goods, or services.
Inventory: items or products for sale
Prepaid expenses: Payment of cash, that is recorded as an asset because service or benefit will be received in the future. 15
Assets
Non-current assets
Long-term investments: acquired by companies to provide benefits for periods of time usually extending beyond one year (e.g. land held for speculation) Property, plant, and equipment: assets acquired for use in the day-to-day operations of the business
(e.g., land used in the operations)
Intangible assets: Lack physical substance
16
Balance Sheet
Liabilities
Current liabilities: Obligations that a company reasonably
Related Documents: Essay about Generally Accepted Accounting Principles and Balance Sheet
Present your information in such a way that the accounting users know where you are and where you are going. If a situation arises where you have to change your accounting system do so otherwise be consistenet in the method that you use. And if you have to change then you may have to adjust your old systems say the year before to the new system. Materaility Significant information are those info that can change the …. Of the accounting system. Should not recognise the economic inflations…
Accounting – The Pensky File It is important that you have an understanding of financial documents that are used in businesses to record transactions, summarise their financial position and indicate their financial performance. Flow of Accounting Information All financial transactions of a business are drawn up into a variety of documents, starting with the journal entries. JOURNAL LEDGER TRIAL BALANCE REVENUE STATEMENT BALANCE SHEET 1. Journals – these are documents that record all…
describes the financial health of a company. And manage proactively, you should plan to generate financial statements on a monthly basis. 2. What reports are included in the financial statements? This includes an income statement and a balance sheet, and often also includes a cash flow statement. Financial statements are usually compiled on a quarterly and annual basis. Income Statement Simply put, the income statement measures all your revenue sources vs. business expenses for a given…
- the standard for creating financial reports in the United States. Income statement - shows revenues, expenses, and profit for a time period such as a month, quarter, or years. Fiscal year - any twelve-month period that a company uses for accounting purposes. Gross profit line - "above the line or below the line" Sales (revenue) - the dollar value given of all the products or services a company provides to its customers during a given period of time. Costs of goods sold - all the costs…
Environment and GAAP Generally Accepted Accounting Principles (GAAP) The role of generally accepted accounting principles (GAAP) in the preparation of financial statements is a set of guidelines that inform businesses how to properly record accounting information in a fair and consistent manner. “Is a rule” to meet that requirement, statements are prepared in accordance with GAAP, which encompasses the conventions, standards and procedures, necessary to define accepted accounting practice at a particular…
Financial Statements The main purpose of accounting is to identify, record, and communicate certain economic events so an organization can determine their financial status and make sound financial decisions. The events are summarized in four basic, but important, financial statements, balance sheet, income statement, retained earnings statement, and statement of cash flow. In this paper, the subject to discuss is the purpose of accounting, how the four statements are interrelated and how…
CHAPTER STUDY OBJECTIVES 1. Identify the sections of a classified balance sheet. In a classified balance sheet, companies classify assets as current assets; long-term investments; property, plant, and equipment; or intangibles. They classify liabilities as either current or long-term. A stockholders’ equity section shows common stock and retained earnings. 2. Identify and compute ratios for analyzing a company’s profitability. Profitability ratios, such as earnings per share (EPS), measure aspects…
Generally Accepted Accounting Principle Paper Maria Cecilia Blancia University of Phoenix HCS/571- Financial Resource Management Joseph Rudd January 19, 2015 Introduction Many health care organizations today are facing challenges on how to manage and operate financial information. Some of the generally accepted accounting principles used in the past may not as effective to tackle the current issues in dealing with the dramatic changes in health care competition, government regulation…
IFRS vs. GAAP Tiree-Cherise Ealey ACC 290 April 6th 2015 Gary Foote Accounting is an important feature in every business worldwide. Essentially, it is necessary in order to keep track of the economic events that occur within a business. These records are used within a company, however they are also used for other purposes, one of them being to report their financial activities. For this to be effective, there must be standards that businesses to adhere to in order to make financial reporting…
GAAP means Generally Accepted Accounting Principles which are a collection of guideline and practices used by the accounting community. In the U.S., these standards are set by the Financial Accounting Standards Board (FASB) and continually update when new accounting issues and concerns arise with GAAP (investor glossary). Outside the U.S. there is the International Financial Reporting Standards (IFRS) which are a set of accounting standards developed by the International Accounting Standards Board…