Financial statement Essay Example for Free

financial rehearsal Essay accountancy mainly involves analyzing, interpretation and insurance coverage of communication channel transaction records. Accounting provides education for end making to the management. The purpose of account is to maintain proper control of finances of an organization. In other words, accounting is an information system whose purpose is to provide essential information about melodic phrase monetary activities. It is generally involves design of record keeping system, summarized reports based on the recorded data and eventually interpretation of the reports.(Duane and Charles 1991 Martin Fernando 2002). quaternity basic financial statements be Balance tack This records assets and liabilities as well as possessors fair-mindedness of a business entity. Assets overwhelm original assets such as currency, debtors, securities, and prepayments. Long term assets include land, machineries, plants, and furniture. On the T account liabilities a re recorded on the right hand side. They include current liabilities and long term liabilities and owners equity. The first step towards preparing financial statement is recording the transactions in the journals. so the accountant will found ledger accounts for every item e. g. machinery, wages, furniture, cash accounts and so on. It is from these ledgers data to prepare the basic financial statement is derived from. The relationships Net income/loss reported in income statement forms part of owners equity items. If net loss results, it is deducted, if net income results then it is added (in the owners equity statement). possessors equity as at end of trading period from the owners equity statement is recorded in the balance sheet as owners capital.Net cash reported in the cash flow statement is the cash reported in the balance sheet (Carl etal 2008) Users of financial Statement Financial statements are very intentionful to managers, investors, creditors, and employees. Managers need to grapple performance of the business in terms of profit, costs, liquidity, and solvency status so as they appropriately plan and make decisions for future. These statements also military service them in budgeting and forecasting the performance. Investors are business enterpriseed about maximization of their wealth. These statements show the dividends and other incomes rewarded.They can use the statements to judge potential earnings from the firm. Creditors offer credit facilities to a business. They use these statements to evaluate a business liquidity and solvency status so as they may be able to know ability of a business to meet its short term and long term liabilities. Employees are also concerned to know the performance of their employer. Good performance means continuation of their employment while poor performance is a threat to their employment. (Bhabatosh 2005) Objectives of financial reporting Financial reporting is to provide information for decision making.It is also garter in forecasting, budgeting, control. Financial reporting determines financial position of a business entity. It also shows income earned. Financial reporting is meant to be used by both internal and external users. Accounting doctrines, assumptions and constraints Accounting rules includes cost precept which state that assets and liabilities should be reported at acquisition cost rather than market cost, taxation principle state that revenue should be recorded when goods pass into the possession of the buyer (when realizable or earned.Revenue should not be anticipated), matching principle state that expenses should be matched with revenues accruing from a certain transaction, Disclosure principle state that, either information that may affect decision making should be disclosed. (Jerry etal 2004). Assumptions includes Going concern a business entity is assumed to be continuing with operations indefinitely, Business entity this state that business and the owners a re separate entities, Time period operations of a business entity can be divided into period periods, Monetary unit assumption a stable currency as unit of account is assumed.(Jerry etal 2004). Constraints includes objectiveness principle financial statement should be objective based on evidence, Materiality principle any item that is likely to influence decision of the financial accounts user should be included, Consistency principle accounting principles should be used be consistently. (Jerry etal 2004). Accounting equation The accounting equation is assets =liabilities + owners liabilities. Business transaction starring(p) to increase in assets will affect assets side.However this has to be funded by either owners or creditors. gist that, the equation will always be balanced. Conclusion Accounting reporting purpose is to provide information for decision making. Accounting standards by both international and national accounting bodies should be adhered to in financial reportin g. Basic financial statements are balance sheet, cash flow statement, owners equity statement, and income statement. These statements are very expedient to both internal and external users as far as decision making is concerned.Reference Duane, R. , Charles, S. (1991). The Essentials of Accounting 1. Research Education Association. Martin, S. , Fernando, A. (2002). Financial Statement Analysis A Practitioners Guide. John Wiley and Sons. Bhabatosh, B. (2005). Financial Policy And Management Accounting 7th Ed. PHI learning Pvt. Ltd. Carl, S. , James, M. , Jonathan, E. (2008) Accounting. Cengage Learning. Jerry J. , Donald, E. , Paul, D. , Barbara, T (2004). Accounting Principles, Part 1. John Willey Sons