Transaction Accounting

Transactions are summarized in accounts, and accounts are further summarized

in the financial statements. In this sense, transactions can be seen as the bricks that

build the financial statements. By learning about the form, content, and relationships

among financial statements in this chapter, you will better understand the process of

building those results—bookkeeping and transaction analysis—described in Chapter 4

and subsequent chapters.

Current generally accepted accounting principles and auditing standards require

that the financial statements of an entity show the following for the reporting period:

Financial position at the end of the period.

Earnings for the period.

Cash flows during the period.

Investments by and distributions to owners (i.e., stockholders) during the period.

The financial statements that satisfy these requirements are, respectively, the:

Balance sheet (or statement of financial position).

Income statement (or statement of earnings, or profit and loss statement, or

statement of operations).

Statement of cash flows.

Statement of changes in stockholders’ equity (or statement of changes in capital

stock and/or statement of changes in retained earnings).

In addition to the financial statements themselves, the annual report will probably

include several accompanying notes (sometimes called the financial review) that

include explanations of the accounting policies and detailed information about many

of the amounts and captions shown on the financial statements. These notes are designed

to assist the reader of the financial statements by disclosing as much relevant

34 Part 1 Financial Accounting

supplementary information as the company and its auditors deem necessary and appropriate.

For Campbell Soup Company, the notes to the 2011 financial statements are

shown in the “Notes to Consolidated Financial Statements” section on pages 715–750

of the annual report in the appendix. One of this text’s objectives is to enable...