1.1.1. Financial Reporting

Question 1

3 sets of books

Answer 1

1. Financial Accounting - standardized reports for external stakeholders
2. Tax accounting - IRS rules
3. Managerial Accounting - custom reports for internal decision making

Diff users want diff summary numbers!

Question 2

Four required financial statements

Answer 2

1. Balance sheet
2. Profit and Loss (with accrual accounting and recognition tied to business activities)
3. Cash flow over period of time
4. stockholders equity over period of time

Question 3

Definition of accounting

Answer 3

Accounting is….

a system for recording information about business transactions

to provide summary statements of a company’s financial position and performance

to users who require such information

Question 4

What does Net income tell you?

Answer 4

Net income tells you whether you priced your services high enough to cover the cost of expenses of providing those services

The income on the P&L is also referred to as accounting income

Question 5

Overlap of Balance Sheet, P&L, Statement of Cash flows

Answer 5

B.S. @ 12/31/14
Assets = L + S.E
(Cash + non-cash) (capital + R.E.)

B.S. @ 12/31/15
Assets = L + S.E
(Cash + non-cash) (capital + R.E.)

Statement of cash flows YE 12/31/15 explains the difference in cash between the two balance sheets

I.S. for YE 12/31/15 explains the difference in R.E. between the two balance sheets