Introduction to financial reporting and analysis pdf

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introduction to financial reporting and analysis pdf

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Financial accounting or financial accountancy is the field of accounting concerned with the summary, analysis and reporting of financial transactions related to a business.

Stockholders , suppliers , banks , employees , government agencies , business owners , and other stakeholders are examples of people interested in receiving such information for decision making purposes. Financial accountancy is governed by both local and international accounting standards.

Generally Accepted Accounting Principles GAAP is the standard framework of guidelines for financial accounting used in any given jurisdiction.

It includes the standards, conventions and rules that accountants follow in recording and summarizing and in the preparation of financial statements. On the other hand, International Financial Reporting Standards IFRS is a set of passionable accounting standards stating how particular types of transactions and other events should be reported in financial statements.

While financial accounting is used to prepare accounting information for people outside the organization or not involved in the day-to-day running of the company, managerial accounting provides accounting information to help managers make decisions to manage the business.

According to International Financial Reporting Standards: the objective of financial reporting is:. To provide financial information that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the reporting entity.

Capital maintenance is a competing objective of financial reporting. Financial accounting is the preparation of financial statements that can be consumed by the public and the relevant stakeholders.

Financial information would be useful to users if such qualitative characteristics are present. When producing financial statements, the following must comply: Fundamental Qualitative Characteristics:. The statement of cash flows considers the inputs and outputs in concrete cash within a stated period. Ellen's cash flow statement for the month of September looks like this:.

Example 2: in the beginning of June, WikiTables, a company that buys and resells tables, sold 2 tables. The first table was paid out in cash however the second one was bought in credit terms. WikiTables' cash flow statement for the month of June looks like this:.

Important: the cash flow statement only considers the exchange of actual cash, and ignores what the person in question owes or is owed. The statement of profit or income statement represents the changes in value of a company's accounts over a set period most commonly one fiscal year , and may compare the changes to changes in the same accounts over the previous period.

All changes are summarized on the "bottom line" as net income , often reported as "net loss" when income is less than zero. The balance sheet is the financial statement showing a firm's assets , liabilities and equity capital at a set point in time, usually the end of the fiscal year reported on the accompanying income statement. The total assets always equal the total combined liabilities and equity.

This statement best demonstrates the basic accounting equation:. The statement can be used to help show the financial position of a company because liability accounts are external claims on the firm's assets while equity accounts are internal claims on the firm's assets. Accounting standards often set out a general format that companies are expected to follow when presenting their balance sheets. International Financial Reporting Standards IFRS normally require that companies report current assets and liabilities separately from non-current amounts.

Current assets are the most liquid assets of a firm, which are expected to be realized within a month period. Current assets include:. Non-current assets include fixed or long-term assets and intangible assets :. Owner's equity , sometimes referred to as net assets, is represented differently depending on the type of business ownership.

Business ownership can be in the form of a sole proprietorship , partnership , or a corporation. For a corporation, the owner's equity portion usually shows common stock , and retained earnings earnings kept in the company. Retained earnings come from the retained earnings statement, prepared prior to the balance sheet. This statement is additional to the three main statements described above. It shows how the distribution of income and transfer of dividends affects the wealth of shareholders in the company.

The concept of retained earnings means profits of previous years that are accumulated till current period. Basic proforma for this statement is as follows:.

The unit of measure in accounting shall be the base money unit of the most relevant currency. This principle also assumes the unit of measure is stable; that is, changes in its general purchasing power are not considered sufficiently important to require adjustments to the basic financial statements. Historical Cost Accounting, i. The stable monetary unit assumption is not applied during hyperinflation. Financial accountants produce financial statements based on the accounting standards in a given jurisdiction.

The trial balance , which is usually prepared using the double-entry accounting system , forms the basis for preparing the financial statements. Financial statements display the income and expenditure for the company and a summary of the assets, liabilities, and shareholders' or owners' equity of the company on the date to which the accounts were prepared.

Asset , expense , and dividend accounts have normal debit balances i. Liability , revenue , and equity accounts have normal credit balances i. When the same thing is done to an account as its normal balance it increases; when the opposite is done, it will decrease. Much like signs in math: two positive numbers are added and two negative numbers are also added. It is only when there is one positive and one negative opposites that you will subtract.

However, it is important to note that there are instances of accounts, known as contra-accounts, which have a normal balance opposite that listed above. Examples include:. From Wikipedia, the free encyclopedia. This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed.

Major types. Key concepts. Selected accounts. Accounting standards. Financial statements. Financial Internal Firms Report. People and organizations. Accountants Accounting organizations Luca Pacioli.

See also: Cost accounting. The Wharton School. Retrieved 13 July IFRS Foundation. Archived from the original PDF on 1 May Retrieved 28 April Deloitte Global. Retrieved May 9, Walther, Christopher J. Harvard Business School Online. Retrieved 2 November Financial Accounting I. Academic Publishing. Fundamentals of financial accounting. Libby, Robert.

Boston: McGraw-Hill Irwin. Walgenbach, Norman E. Dittrich and Ernest I. Page The Institute of Cost Accountants of India. Financial accounting Cost accounting Management accounting Forensic accounting Fund accounting Governmental accounting Social accounting Tax accounting. Income statement Balance sheet Statement of changes in equity Cash flow statement. Categories : Financial accounting.

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Historical cost Constant purchasing power Management Tax. Auditing Financial Internal Firms Report. People and organizations Accountants Accounting organizations Luca Pacioli.

Corporate Financial Reporting and Analysis: A Global Perspective

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This book is intended to offer the rigor and comprehensive coverage required of an MBA text, while at the same time offering an accessible and practical reference for participants in executive programs. This book offers a rigorous, yet accessible, treatment of contemporary financial reporting practice. Examples are drawn from a broad range of companies to illustrate key concepts. Particular emphasis is given to the latitude and flexibility granted to managers in reporting financial performance, and the steps that financial statement readers can take to identify potential trouble areas in the accounts. Topics include the analysis and interpretation of the three principal financial statements, revenue recognition, inventory accounting, receivables and bad debts, accounting for long-term assets, provisions and contingencies, income taxes, and the accounting for mergers and acquisitions. A unique feature of this book is the seamless way in which it deals with differences in U. Both regimes are covered simultaneously, i.

Chapter 02 -Financial Reporting and Analysis Financial Reporting and Analysis

This book employs a true "user" perspective by discussing the contracting and decision implications of accounting, helping readers understand why accounting choices are so important and to whom they matter. Revsine, Collins, Johnson, and Mittelstaedt train their readers to be good financial detectives by enabling them to read, use, and interpret the statements. For use as a core text for undergraduate Juvenile Delinquency courses in departments of Criminology and Sociology.

Corporate Financial Reporting and Analysis, 3rd Edition

Financial Reporting And Analysis Tutorial. IT Skills. Management Skills. Communication Skills.

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Chapter 1 Introduction to Financial Reporting 1. Development of Generally Accepted Accounting Principles (GAAP) in the. United States 1.


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