Submitted by: Submitted by ROGERFOX73
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Category: Business and Industry
Date Submitted: 09/07/2015 03:55 PM
Roger A. Fox
Finances
Business 115
Homework
Financial statements need examination because they show the true condition of the business. It will display how much cash is available as well as debt. A financial statement is basically, a summary of all the financial transactions that have occurred over a particular period. Financial statements indicate a firm’s financial health and stability and are key factors in management decision making. (Nickels, pg.472) There are three key areas in a financial statement and they are the following, balance sheet, which reports the firm’s financial condition on a specific date. The income statement, which summarizes revenues, cost of goods, and expenses (including taxes), for a specific period and highlights the total profit or loss the firm experienced during that period. The statement of cash flows, which provides a summary of money coming into and going out of the firm. It tracks a company’s cash receipts and cash payments. (Nickels, pg.472)
The reason for using these specific procedures are independent Financial Accounting Standards Board (FASB) defines the generally accepted accounting principles (GAAP) that accountants must follow. If accounting reports are prepared in accordance with GAAP, users can expect the information to meet standards upon which accounting professionals have agreed. (Nickels, pg.467) There is no flexibility when it comes to preparing financial statement according to author Bill Nickels, he states “accounting professionals understands that to be effective, accountants must be considered as professional as doctors or lawyers. Besides completing more than 150 hours of intense training and a rigorous exam, CPAs on average take 40 hours of continuing education training a year, are subject to recertification, undergo ethics training requirements, and must pass an ethics exam.” (Nickels, pg.468)
Financial ratios measure a firm’s performance because they assess firms financial condition, using...