In previous decades, the United States based Financial Accounting Standards Board (FASB) and the IASB operated independently from each other. The IASB also help to develop regulatory policies and accounting principles for countries that require the use of International Financial Reporting Standards (IFRS). The IASB works to develop standards and accounting procedures for more than 100 countries including the United States. One of the main standards agencies is known as The International Accounting Standards Board (IASB). In the field of accounting there two main regulatory boards which oversee the development of accounting standards for many countries across the world including the United States and the European Union. Additionally the balance sheet reports the stockholders' equity, which are the owners' shares of the business. The balance sheet also reports liabilities, which are the debts of the business. The balance sheet reports assets, which are items that have a value such as equipment, buildings, and inventory. The balance sheet answers the question of "What does the business own and who has monetary claims against the business?" The balance sheet will provide a snapshot or overview of the financial position of a company for a point in time. The purpose of this article is explain the purpose and structure of the financial statements that are used to by accountants, business managers, and investors to interpret and analyze the current financial position of a company as well as any past trends in order to forecast where the company is headed in the future.Ĭompanies will present their financial records with four basic financial statements: You should be able to recognize and understand how the financial statements are inter-linked to each other and how the information in one financial statement will have an impact on all of the others.You should be able to recognize the four main types of financial statements that a business will use during a normal reporting period.You should gain knowledge of the types of forms that are required by United States Securities and Exchange Commission to be filed for publicly traded companies.Examples of this would be payments that are made to employees for wages or salaries, the purchasing of raw materials or goods, the purchase of advertising, etc. These can be things like the sales of goods or services as well as selling stock or property.Įxpenses- Expenses are defined as monetary cash outflows of a business. Revenue- The revenues for a business are the earnings or income. Examples of these would be amounts owed for car payments, or bank loans.Įquity- Equity is what someone owns the business and is represented by the assets of the business minus the liabilities of the business. Liabilities- Liabilities are the amounts of money that are owed to people or other companies outside of your business. These items can include cash, inventory, property, and vehicles. These accounts are the income account, the assets, the liabilities, the capital account, and the expense account.Īssets- Assets are defined as items that are considered to be of value and owned or controlled by a business. Pacioli also wrote that there should be a separation of five different types of accounts that are still used in the present day. A more modernized definition would be that for every financial entry made to an account there must have a subsequently different and corresponding account with the opposite entry made to it. The concept of Pacioli's double-entry bookkeeping was that, "for every credit there must be a debit". The mathematical expressions and ideas published by Pacioli were the framework for what is now known as double-entry accounting or double-entry bookkeeping as it was referred to at the time. Accounting is the language of business and it allows people to communicate with the operations and transactions of a business or even an entire industry.Īccounting began hundreds of years ago and first showed up in a mathematics textbook published in the 1490's by an Italian mathematician named Luca Pacioli. The best way to understand accounting is to think of it as a language. In order to communicate in a precise and ordered manner that is repeatable and understandable for anyone to interpret, a language has been developed specially for business. In business people will discuss earnings, net income, equity, liabilities, and other business terms in order to understand the operations and financial status of a company. Financial statements are standardized formal records that detail and explain the financial activities such as, revenue and expenses for a business or an individual, and are one of the most fundamental aspects of Accounting.
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