Concept of financial statements , Financial Accounting

Assignment Help:

Concept  of Financial statements 

Financial statements portray the financial effect of transactions and events by grouping them into classes broadly called elements. A complete set of financial statements normally consists of a Balance Sheet, a profit and loss Account and a Statement of Cash Flows, notes and related statements.

Balance sheet is known as position statement because it is prepared to know the financial position at the end of the period. Assets are shown on the assets side and capital and liabilities are shown on the liabilities side of the balance sheet.

Financial statements can be prepared in vertical form or in horizontal form. Generally, all non-corporate entities present their financial statements in horizontal form. Nowadays, all corporate entities are presenting their statements in vertical form.

The purpose of the income statement is to determine the profits of the company. This statement is also helpful in predicting the future profitability of the concern and the future cash generating ability of the enterprise.

A cash flow statement reports the change in ‘cash and cash equivalents' by classifying the inflows and outflows into three categories. They are: Cash flows from operating activities; Cash flows from investing activities and Cash flows from financing activities.

The assumptions and conventions used in the preparation of financial statements give rise to several limitations.

These assumptions also manifest themselves in the form of measurement errors or accounting frauds.

The major sources of measurement error introduced by GAAP accounting rules relate to the recognition and valuation of non-financial assets.

Measurement errors due to lack of foresight occur because even if the management has done a thorough job at estimating inherently subjective future amounts, there is still a little probability that it might involve a potential estimation error.

 


Related Discussions:- Concept of financial statements

Caselet, prepare your recommendation on Agarwal cast company

prepare your recommendation on Agarwal cast company

Discounted cash flow and terminal growth rate, Answer the following questi...

Answer the following questions relating to Discounted Cash Flow (DCF) projections and valuations. (a)    Michael Hudson asks a rhetorical question (tongue in cheek): "What's not

What is the present value, What is the present value of $500 per year for t...

What is the present value of $500 per year for ten years at 12 percent, assuming a regular, or ordinary annuity?

Return on equity, profit margin 2.5%, equity multiplier 2.0,sales $50000, c...

profit margin 2.5%, equity multiplier 2.0,sales $50000, common equity $25000.compute return on common equity.

Determine estimated cost, XYZ Company is a large manufacturer of auto parts...

XYZ Company is a large manufacturer of auto parts for the auto manufacturers and parts distributors. XYZ has plants throughout the world, but most are located in North America. XYZ

Uncertainty concerning the business, Uncertainty concerning the business ...

Uncertainty concerning the business It has been recognised in a variety of studies that the problem of adequately financing SMEs is a problem of uncertainty. A defining feature

Total cost at each breakeven, Q. The British Mini car was designed by ...

Q. The British Mini car was designed by a team headed by Sir Alec Issigonis in the late 1950's. Describe the process of the design of this product. Consider the context of

Total shareholder return, The dividend yield as well as capital growth for ...

The dividend yield as well as capital growth for 2004 must be calculated with reference to the 2003 end-of-year share price. The dividend yield is 0·56% (100 × 2·8/500·8) as well a

Prepare a post-closing trial balance, Ocean Atlantic Co. is a merchandising...

Ocean Atlantic Co. is a merchandising business. the account balances for Ocean Atlantic co. as of July 1, 2012 (unless otherwise indicated), are as follows: 110 Cash 63,600 1

Calculate the beta of assets , An investor holds a bullish view for the equ...

An investor holds a bullish view for the equity market over the next twelve months and wishes to recalibrate his portfolio to reflect this view. The investor's portfolio consists o

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd