Financial Accounting and Its Main Purposes
ACCT 2081 - Financial Accounting
University of Cincinnati
March 23, 2024
Introduction
The following essay examines the purpose of accounting.The essay
also discusses the four basic financial statements and how they are
interrelated with each other and the importance of financial statements
to managers, investors, creditors, and employees. Accounting entails
the process of analyzing, recording, summarizing and reporting
accounting information to parties that are involved (Weygandt, 2008,
P.6).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Purpose of Accounting
The following are the main purposes of accounting; Financial
accounting helps keep systematic record of all the financial activities
of a business entity.Usually,business transactions are prepared and
recorded in financial statements such as income statement, statements
of financial position ,cash flow statement and change in owners
equity. The International Accounting Standards requires that business
transactions should be properly recorded in order to facilitate
remembering of all business transactions in future. Human beings
have limited memory and therefore, they can forget business
transactions if they are not kept in a systematic manner (Baneriee,
2010, P.2).
The other purpose of financial accounting is to provide information
about the financial position, cash flows and performance of a business
entity. The financial statements facilitated meeting this objective by
providing information about the assets, liabilities ,equity, income and
expenses, cash flows and other changes in equity of a business entity.
This financial information as well as the information contained in an
entity’s accompanying notes enables the users to evaluate the future
cash flows of a business entity (Baneriee, 2010, P.2).
Financial accounting plays an important role of communicating the
financial results of a business entity to the users to enable them make
decisions. Accounting is usually deemed as a business language
because it communicates valuable information to various interested
groups. Accounting plays an important role of communicating past
and present performance of a business entity and this enables the users
to determine whether business operations are carried out in effective
and efficient manner (Baneriee, 2010, P.2).
Accounting is also used as a tool of meeting legal requirements.
Business are required to keep their accounts in an orderly manner
facilitate such legal requirements such as tax assessment (Baneriee,
2010, P.2).
Basic financial statements
Financial statements entail the end products which are prepared from
the adjusted trial balance. There are four basic financial statements
namely; income statement, statement of financial position, cash flow
statement and changes in owners equity.
The income statement also known as profit and loss account is a
financial statement that is used in reporting the operating performance
of a business entity over an accounting period. The income statement
summarizes the earnings and expenses of an entity over an accounting
period. The income statement is thus a recapitulation of all the
financial transactions of a business entity during an accounting period.
It allows organizational leaders and other users of account information
to track the revenues and expenses. Revenues are usually recorded on
the right-hand side of an income statement account and this implies
that revenues increase the shareholders equity.
Expenses are recorded on the left hand-side of an income statement
denoting the fact that they decrease shareholder’s equity. The profit
and loss account is a temporary account and it is closed at the end of
an accounting period and the balance is transferred to the
shareholder’s equity and eventually, to the balance sheet. If revenues
exceed expenses, then a profit is recorded and this amount is placed
on the left-hand side of profit and loss account when closing an
income statement. A loss which arises when expenses exceeds
revenues appears on the left hand side of a profit and loss account
(Weygandt, 2008, P.6-12).
The balance sheet is a financial statement that provides the company’s
worth at a specific moment in time. The balance sheet shows all the
assets as well as all the liabilities of a business entity. The net worth of
a firm is derived from the difference between the company’s assets
and the liabilities. The balance sheet can be used in determining the
liquidity level of a firm by comparing the current assets amount to the
current liabilities amount. It also plays an important role of
determining whether the firm is able to pay dividends to shareholders
(Weygandt, 2008, P.6-12).
The cash flow statement is a financial statement that enables tacking
of sources and uses of funds. The totals of cash flows are crucial as
they show whether a business is successful or not because cash is key
with regards to efficient functioning of an entity (Weygandt, 2008,
P.6-12).
Changes in owners equity arises from the increase or decreases in
owner’s capital account as a result of the various transactions that
occur in an accounting period. In computing owner’s equity, liabilities
are deducted from assets. Equity refers to owners claim in company’s
assets after deducting liabilities (Weygandt, 2008, P.6-12).
The statements are interrelated with each other in that they provide the
various users with relevant financial information for decision making
(Weygandt, 2008, P.6-12).
Importance of financial statements
Financial statements is useful to the following users i.e. managers,
investors, creditors, and employees. Information contained in financial
statements enables managers to highlight financial strength and
weaknesses of a business entity. It enables them to predict the
financial crises that can affect their business and thus to take
corrective measures in advance. Financial statement information is
valuable to investors as it enables them to know the profitability of a
business entity and thus make decisions on whether to invest or not.
Creditors are concerned with the financial statement information in
order to determine the liquidity position of a firm and to know
whether the firm will meet their short term claims. The employees
require financial statement information in order to know whether is in
a position to increase their wages (Weygandt, 2008, P.6-12).
Reference List
Baneriee, B. (2010).8Financial accounting: Concepts, Analysis,
Methods andUses. New Delhi: PHI Learning Pvt.Ltd.
Weygandt, J (2008).8Financial accounting (6th ed). Hoboken: John
Wiley & Son.
