Audits of Financial Statements
Annual reports present financial statements that have been audited by an independent accounting firm. Auditing of financial statements is an important function that is performed under specified auditing standards and which may be required by law, regulation, or some form…
Other Information Sources
To get a fairly accurate picture of a company’s financial position and financial performance, analysts tend to base their financial statement analysis on the company’s audited, annual financial statements. The audit of the annual financial statements, in this case, must…
The Financial Statement Analysis Framework
The financial statement analysis framework is a generic term used to describe the process in which analysts assess financial statements, supplemental information, and other sources of information. Essentially, financial statement analysis framework helps analysts to draw conclusions and make informed…
How Business Activities are Classified
When reporting on a company’s financial position and performance, it is very important to appropriately classify various business activities of the company. Understanding how this classification is done lays the foundation for understanding financial reporting mechanics. Indeed, this helps in…
Classification of Accounts
Business activities can be reflected in any one of the five broad categories of financial statement elements: assets, liabilities, owners’ equity, revenue, and expenses. Within these financial statement elements are sub-classifications referred to as accounts, which provide individual records of…
Accounting Equations
Financial statement elements (assets, liabilities, owners’ equity, revenue and expenses) are used as the inputs for the equations which feed into the preparation of a company’s financial statements. The balance sheet and income statement are two of the most popular…
Recording Business Transactions
An accounting system allows a company to translate its business activities into usable financial records. The company uses these financial records to assess its profitability, evaluate its financial position, and identify any business activity which requires further action. Recording Business…
Accruals and Valuation Adjustments
When preparing its complete financial statements, a company will review its operations in order to determine whether any accruals or adjustments are needed. This allows for allocation of revenue and expense items into the proper accounting period. The Need for…
Relationships Among Statements
Financial statements use the financial data that is reported in the accounting system to present data in a more meaningful manner. The primary financial statements are: balance sheet, income statement, statement of cash flows, statement of owners’ equity, and statement…
Flow of Information in an Accounting System
It is important for accountants to understand each step involved in an accounting system. This is because they are the ones who will be preparing the financial records which are subsequently presented in financial statements. Analysts, on the other hand,…
