Types of Financial Statements in Accounting

Types of Financial Statements in Accounting

Accounting– information system that measures business activity , processes the data into reports, communicates the results to decision makers

Financial Statements- report on a business in monetary terms

Accounting can be divided into 2 fields: Financial and Managerial

  • Financial Accounting-provides information for external decision makers
  • Managerial Accounting– provides information for internal decision makers

 

Governing Organizations:

  • FASB– Financial Accounting Standards Board
  • PCAOB– Public Companies Accounting Oversight Board
  • AICPA– American Institute of Certified Public Accountants
  • GAAP– Generally Accepted Accounting Principals

 

Sarbanes Oxley Act- in response to Enron, it made it a criminal offense to falsify financial statements. It also created PCAOB

Types of Financial Statements in Accounting

Types of Financial Statements in Accounting

 

Types of Business Organizations:

  • Proprietorship- single owner
  • Partnership- 2 owners
  • Corporation- legal entity
  • Limited Liability Partnership- each member is responsible for own actions
  • Not for profit – approved by IRS

Fiduciary Responsibility– legal responsibility to perform duties in trustworthy manner

 

Corporations:

  • Separate Legal Entity
    • Business entity formed under state law
    • Granted charter which acts as articles of incorporation
    • Authorization is granted by state to form corporation
    • Charter specifies how much stock can be sold
    • Continuous Life
    • No Mutual Agency
    • Limited Liability of Stockholders
    • Separation of Ownership and Management
    • Corporate Taxation
      • Annual Franchise Tax
      • Income taxes
      • Government Regulation
      • Organization
        • Stockholders
        • Board of directors
        • Chairperson of the board
        • President
        • VP’s and Secretary

Accounting Concepts and Principals

  • Entity Concept- refers to one business separate from the owners
  • Faithful Representation- data is correctly represented
  • Cost Principals- Historical Cost
  • Going Concern Concept- Entity will remain in operation in future
  • Stable Monetary Unit Concept- stable currency buying power is assumed

 

Accounting Equation:

  • Assets- something the business owns that has value
    • Assets = Liabilities + equity
    • Liabilities- something a business owes
      • Liabilities = Assets – equity
      • Equity- The owner’s claims to assets of a business
        • Equity = assets – liabilities

Equity:

Equity of a corporation is called shareholder’s equity

Equity consists of paid in capital and retained earnings

  • Paid in Capital (contributed capital)- stock
  • Retained Earnings- Revenues and expenses

Net income– retained earnings before dividends are paid out

 

Review: Assets (what is owned) = liabilities (what you owe) + equity (net worth)

 

Types of Financial Statements:

  • Income statement- net income reported
  • Statement of Retained Earnings- what was done with retained earnings (dividends?)
  • Balance Sheet- shows assets and what is owed
  • Statement of Cash Flows- shows whether cash receipts increased or decreased

 

Financial Statement Headings:

Name of Business

Name of Type of Financial Statement

Date reported

 

Statement Preparation

  1. Income Statement
  2. Retained Earnings
  3. Balance Sheet
  4. Cash Flow

 

 

 

 

 

 

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