Financial Accounting focuses on financial reports distributed to people outside the company. The main component of the financial statements, the financial statements: income statement, balance sheet, cash flow statement and the statement of changes in equity. The income statement indicates the profitability of a company for a certain period, such as one year, three months or one month.
Under accrual accounting the income statement reports the amount of earned income and the expenses incurred to earn income. Costs also include costs falling due during the period of the income statement. If a corporation is traded the stock market, the profit and loss account will also report earnings per share of common stock. The balance sheet reports assets of a business, liabilities and equity as of a specific time, such as midnight on December 31 Most balances groups all of the current assets and all current liabilities. This allows readers to easily see the company’s working capital and current ratio. The statement of cash flows is organizing the explanation of the change in cash and cash equivalents into three parts: operating, investing and financing activities. The statement of shareholders’ equity shows the changes in equity during the reporting period. The changes include net income, dividends, share buybacks, and income.
In order for the readers of the financial statements to make comparisons with other companies, it is necessary to follow the financial statements some common rules. The rules are intended to generally accepted accounting principles, or GAAP (pronounced gap) and consist of several components. A component of GAAP basic or basic accounting principles and concepts such as cost, matching, continuity, economic entity, materiality, conservatism, consistency, reliability, and others. You can see a brief explanation of these principles, together with an example of each in AccountingCoach.com.
Another part of GAAP includes establish the detailed rules by the Financial Accounting Standards Board, or FASB (pronounced Bee fas). These statements are entitled statements of financial accounting standards. FASB interpretations are also part of GAAP. You can view these statements by [http://www.FASB.org/st]. The accounting rules by the predecessors of the FASB remain as GAAP, unless they are replaced by the FASB.
Finally GAAP includes industry practices. Thus, the balance of a public utility, the plant assets prior to his current assets list. Unique reporting practices are common in industries that are regulated by the government.
The accounting and financial reporting of listed companies also report to the Securities and Exchange Commission (Form 10-K), the annual report to shareholders, press releases and various financial matters.