: Financial Statements

Part I

A . Generally Accepted Accounting Principles (GAAP : These are generally accepted guidelines which are to be followed during the preparation of financial statements . GAAP is technical an accounting term that includes the conventions , rules , and procedures necessary to define accepted accounting practice at a particular time . GAAP , usually contains balance sheets as of given dates , income statements for given periods , and cash flow statements for the same periods . A special statement highlighting changes in owners ' equity on the balance sheet is commonly provided as well

B . Historical Cost : An

accounting principle requiring the recording of transactions

and the maintenance of recorded values at the actual level incurred regardless

of any subsequent changes in the value of the assets or liabilities involved

C . Accrual Basis vs . Cash Basis Accounting : Recognition of revenues or expenses

when earned or incurred , without regard to the actual timing of the cash transactions used in the accrual method of accounting or we can say in a manner that Method of ACCOUNTING that recognizes REVENUE when earned rather than when collected . Expenses are recognized when incurred rather than when paid . While on the other hand

cash basis accounting is a methodology in which revenues and expenses and all other transactions are recognized when cash changes hands , in contrast to the accrual method of accounting

D . Current Assets and Liabilities vs . Non-Current Items : Current assets consist of the value of cash , accounts receivable , marketable securities , inventories and other assets that could be converted to cash in less than 1 year or ASSETS that can be reasonably expected to be converted into cash , or get sold , consumed in operations within a single operating cycle , or within a year incase more than one cycle is completed each year

Current Liability is an obligation whose LIQUIDATION is expected to require the use of existing resources classified as CURRENT ASSETS , or the creation of other current liabilities or Amount owed for salaries interest , accounts payable and other debts due within 1 year Non-Current Items are Long-lived property owned by a firm that is used by a firm in the production of its income . Tangible fixed assets include real estate , plant , and equipment . Intangible fixed assets include patents , trademarks , and customer recognition

Opinion regarding the usefulness of the Net Income or Cash From Operating Activities

Both the component net income and cash flow from operating activities has an importance and no one denies the grandness of each . But if we talk about from the organizational point of view (CFO ) gives the right choice for opinion because it reflects the daily routine business operation and It gives a fair amount of knowledge about the business running methodology and how the cash mull over with respect to current assets and liabilities of the business . While on the other hand net income also gives the right idea about the business operation but many contemplation is made with respect to inventory valuation techniques revenue recognition technique etc .Remember financial cost and the tax factor also reduces...