GAAP Matching Disclosure Materiality Conservatism Principles Historical cost Revenue recognition Objectivity Periodic assumption Periodic assumption Going-concern assumption Going-co[r]
(1)McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc All rights reserved.
Statement
Analysis
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CHAPTER
(3)Statutory Financial Reports
• Annual reports • Quarterly reports
– Balance sheet (Statement of financial position) – Income statement
– Statement of Cash flows
(4)BALANCE SHEET
To report an entity’s
assets, liabilities and
owners’ equity at a point in time
(5)INCOME STATEMENT
To report the success/failure
in doing business for a period of time
To summarize revenues and
expenses incurred in a period:
(6)STATEMENT OF CASH FLOWS
To provide information about cash-in and cash-out in a
period
To report cash flows for business activities:
(7)(8)NOTES TO FINANCIAL STATEMENTS
(9)(10)(11)(12)(13)Limitation of Accounting Infomation
o Timeliness - periodic disclosure, not real-time
basis
o Frequency - quarterly and annually
o Forward Looking - limited prospective
information
o Timeliness - periodic disclosure, not real-time
basis
o Frequency - quarterly and annually
o Forward Looking - limited prospective
(14)Economic Income vs Accounting Income
Economic Income
o Measures changes in Shareholders wealth o Cash flows + Present
value of expected future cash flows
Accounting Income
o Based on the concept of
accrual accounting
(15)Demand for Accounting Analysis
o Adjust for accounting distortions so financial
reports better reflect economic reality
o Adjust general-purpose financial statements to
meet specific analysis objectives of a particular user
o Adjust for accounting distortions so financial
reports better reflect economic reality
o Adjust general-purpose financial statements to
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