Part IGenerally Accepted Accounting Principles (US GAAP) GAAP are accounting standards that are used for preparation, presentation and reporting financial statements for public, private, government and nonprofit making organizations. The purpose of these rules is to ensure that the reporting of financial statements is transparent and observes consistency. This is a measure to ensure that those relying on the reporting make prudent economic decisions. Financial statements covered by GAAP include the balance sheet, income statements and the cash flow statements.
International Accounting Standards (IFRS)
International financial reporting standards refer to a setoff accounting rules developed by international accounting standards board. The standards ensure that business transactions are comparable and easily understood and reliable across different business entities (Ramagopal, 2009).
Securities and Exchange Commission (SEC) SEC is a federal agency that enforces state laws and regulations pertaining the securities industry. It main aim is to protect investors by maintaining a fair play ground that is orderly and efficient between investors and traders. SEC advocates for disclosure of securities trading information and controlling fraud
This is a detailed report showing the financial and non financial activities of company in the preceding year of operation. It aims to disclose important information to shareholders, management, the government, investors, analysts and potential investors about the financial performance of a company. This is a move to ensure that all these stakeholders make informed decisions pertaining investment, analyzing and taxation10-K,
This is a company’s report that is filed yearly. It contains detailed information about accompany including financial statements and organization structure. It is a requirement by the sec that summarizes financial performance of a company.
This is a report that is produced every quarter of a year by a company detailing the financial performance. It contains less information as compared to an annual report. Every company is required to file this report within 35 days after the end of the financial quarter. Financial information contained in this report is usually unaudited.
This is a form filed by accompany informing shareholders of any unplanned events that are material to them. Such important information includes delisting, shut down, bankruptcy and layoffs in a company. This form is usually prepared quarterly.
The income statement
This is also known as the profit and loss statement. It measures the financial performance of an entity in a specific accounting period. It contains revenues, gains, losses and expenses. Revenues refers to the earnings derived from normal business operations that is, through the sale of gods and services. Gains are profits derived by assets or the reduction in liabilities. Gains are derived out of the usual business operation. Expenses are costs incurred in earning revenues. Losses are reduction in assets or increase in liabilities derived out of normal business operations (Smith Barry, 2010). The income statement can be prepared by two formats namely; multi-step and single- step formats.
Multi- step format
Single step format
The balance sheet
A balance sheet is a financial statement that shows the financial position of an entity. It shows assets, liabilities and equity. It represents the accounting equation where Assets = Liabilities + Equity
A cash flow statement
This is a financial statement showing movements of cash in and out of the business. (Gangwar, Sharda & Gangwar, 2009).
Statement for retained earnings
This is a financial statement that reconciles changes of retained earnings in a financial period. It adopts a formula where beginning retained earnings + net income – dividends= ending retained earnings
Accounting equation shows the relationship between assets, liabilities and equity. It is the basis of the double entry system (Edwards, J.D. & Hermanson, R.H., 2007).
Assets = liabilities + capital
- The sale of Xyz’s inventory increases the receivables account by $600 and increases the income (equity) account by the same amount.
The above transactions appear as below:
Edwards, J.D. & Hermanson, R.H. (2007) Accounting Principles: A Business Perspective. First Global Text Edition, Volume 1. Financial Accounting, pp. 6 37. Gangwar, Sharda & Gangwar, D.K. (2009). Fundamental Principles of Accounting, Global Media (read chapter 4: Trial Balance), from library portal via coursenet.
Ramagopal, C. (2009). Accounting for Managers, New Age International 2009 (read chapter 11), from library portal via coursenet.
Smith, Barry. (2010). Introductory Financial Accounting, Open University Press 2010 (read chapters 1, 2, 3, and 11) from library portal via coursenet.