Slides – Accounting Intake 52

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<i><b>McGraw-Hill/Irwin</b></i> <i><b>Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.</b></i>

<b>Statement </b>

<b>Analysis</b>

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2

<b>CHAPTER</b>

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<b>Statutory Financial Reports</b>

• Annual reports
• Quarterly reports

– Balance sheet (Statement of financial position)
– Income statement

– Statement of Cash flows

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<b>BALANCE SHEET</b>

 _{To report an entity’s}

assets, liabilities and

owners’ equity<i><b> at a point </b></i>
<i><b>in time. </b></i>

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<b>INCOME STATEMENT</b>

 _{To report the success/failure}

in doing business for <i>a period </i>
<i>of time. </i>

 _{To summarize revenues and}

expenses incurred in a period:

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<b>STATEMENT OF CASH FLOWS</b>

 _{To provide information about cash-in and cash-out in a}

period.

 _{To report cash flows for 3 business activities:}

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<b>NOTES TO FINANCIAL STATEMENTS</b>

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<b>Limitation of Accounting Infomation</b>

o <b>Timeliness</b> - periodic disclosure, not real-time

basis

o <b>Frequency </b>- quarterly and annually

o <b>Forward Looking</b> - limited prospective

information

o <b>Timeliness</b> - periodic disclosure, not real-time

basis

o <b>Frequency </b>- quarterly and annually

o <b>Forward Looking</b> - limited prospective

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Economic Income vs. Accounting Income

<b>Economic Income</b>

o Measures changes in
Shareholders wealth.
o Cash flows + Present

value of expected future
cash flows.

<b>Accounting Income</b>

o Based on the concept of

accrual accounting

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<b>Demand for Accounting Analysis</b>

o Adjust for <i>accounting distortions</i> so financial

reports better reflect economic reality

o Adjust general-purpose financial statements to

meet specific <i>analysis objectives</i> of a particular
user

o Adjust for <i>accounting distortions</i> so financial

reports better reflect economic reality

o Adjust general-purpose financial statements to

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<b>Financial statements in global environment</b>

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