Basic Financial Statements Under Generally Accepted Accounting Principles

1820 WordsApr 16, 20178 Pages
Understanding Basic Financial Statements Companies report their financial activities in four basic financial statements under generally accepted accounting principles (GAAP). The four basic financial statements are as listed below: 1. The balance sheet shows in a tabular form, the asset, liability and owners’ equity of a company, at a particular time. The assets of a company will always equal to the sum of liabilities and owners’ equity, this is called the accounting equation. i.e Asset = liability + Owners Equity 2. The income statement gives details of executed transactions which contributed positively or negatively to the owners’ equity. These transactions can bring about an increase or reduction in the owners’ equity. The income…show more content…
Every transaction, because of its financial impact, affects the financial statements of the business. Financial statements can be prepared after 1, 2, or any number of transactions. Every transaction has two sides: the giving side and the receiving side The record used to capture events that has financial impact on each asset, liability, and stockholders’ equity is called the account. The account is the basic summary device of accounting. An account is the record of all the changes in a particular asset, liability, or stockholders’ equity during a period. Assets can be defined as economic resources owned or controlled by the firm that deliver a future benefit for a business. They are acquired by the firm as a result of a past event or transaction. Assets that can be converted to cash within a short term like cash at hand/bank, inventories, are call short-term or current assets. Property, plant and equipment are categorized as long term asset The following asset accounts are mostly used: Cash, Accounts Receivable. Notes Receivable, Inventory, Prepaid Expenses. Land, Buildings, Equipment, Furniture, and Fixtures. Liabilities is a debt. An obligation to another party is a liability. The most common types of liabilities include: Accounts Payable, Notes Payable, and Accrued Liabilities. Liabilities arises from
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