Financial Analysis Statement

The Financial Statement Analysis

Veronica Avery

Ashley Lowe

Bianca Spell

Tena Thompson

William Wahner

University of Phoenix Online

Don Furman PhD

September 20, 2010

The Financial Statement Analysis

The ability of management and investors to analyze correctly the financial statements of a firm is critical to the long term success of both the firm and the investor. These statements portray the financial standing of the firm at a given point. The ability to analyze these statements properly is largely dependent on the ability to understand the information in the statements and the implications of this information. The purpose of this paper is to discuss accounting base methods, statement interaction, effects of statement alterations, and statement relationships.

Accounting Base Comparison

A business firm applies accounting methods based on the cash or accrual basis for their transactions depending on the process of recording the revenues and expenses. Accrual-based accounting is adopted by large business or public companies to record the revenues earned and expenses incurred as the transaction occurs. Cash-based accounting is adopted by smaller businesses to record the revenues when received and expenses when paid. Income tax returns are one example where citizens of the United States apply the cash basis of accounting. Cash-based accounting will not record outstanding assets or debts such as accounts receivable or payable. Also not included are values of inventory until either paid for or generating received revenues. This type of statement captures only sales and revenue. On the other hand, accrual-based accounting records revenue as it is generated including not yet received amounts. Cash-based accounting reports the cash paid to vendors but accrual basis accounts both paid and yet to be paid accounts in their expenses. Accrual-based accounting depicts a more accurate measurement of a company’s performance eliminating potentially...