Finaicial Statements
Financial Statements
What are financial statements? Why are financial statements important concepts with regards to a business’ operations? Financial statements are records of a business’ financial flows (e.g., revenues & expenses) and levels (e.g., assets & liabilities) (Wikipedia, 2006). Financial statements provide owners and investors a comprehensive financial picture of a business’ operation, financial situation, and assist in the evaluation of past and current performance (White, 1999-2006). Although financial statements are important aspects of every business, the truth has yet to be told regarding the actual input and output of a business.
The purpose of this paper is to organize a case method by discussing and expanding on the definitions of generally accepted accounting principles, historical cost, accrual basis vs. cash basis accounting, current assets and liabilities vs. non-current items and provide an explanation as to why each of the above concepts are important to financial statements (Part I). In addition, (Part II) will provide a brief description of the general organization of the balance sheet, income statement, and statement of cash flow for Ford Motor Company, Microsoft, and ExxonMobil, determine whether net income or cash from operating activities is more useful for each company, make a prediction about each company based on the company’s financial statements, and then derive at a conclusion about each company based on the additional information obtained from the company’s annual report.
Part I: Important Concepts to Financial Statements
In the world of finance and accounting, there are a number of important concepts businesses should take into consideration when preparing financial statements. Those important concepts consists of generally accepted accounting principles (GAAP), historical cost, accrual basis vs. cash basis accounting, and current assets and liabilities vs. non-current items....
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