Chapter 1, financial statements and business decisions. After studying this chapter, you should be able to: Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers, identify the role of generally accepted accounting principles (GAAP) in determining financial statement content and how companies ensure the accuracy of their financial statements. | Chapter 1 Financial Statements and Decisions McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 1: Financial Statements and Business Decisions The Accounting System The accounting system collects and processes financial information about an organization and reports that information to decision makers. The accounting system provides financial accounting reports which include periodic financial statements and related disclosures to external decision makers. These decision-makers include investors, creditors, suppliers, customers, union representatives, and all other interested parties. The accounting system also provides managerial accounting reports including detailed plans and continuous performance reports. These reports are used by internal decision makers throughout the organization to make decisions about pricing, production, quality, and numerous other day-to-day activities. The Four Basic Financial Statements BALANCE SHEET – reports the amount of assets, liabilities, and stockholders’ equity of an accounting entity at a point in time. INCOME STATEMENT – reports the revenues less the expenses of the accounting period. STATEMENT OF STOCKHOLDERS’ EQUITY – reports the changes in each of the company’s stockholders’ equity accounts, including the change in the retained earnings balance caused by net income and dividends during the reporting period. STATEMENT OF CASH FLOWS – reports inflows and outflows of cash during the accounting period in the categories of operating, investing, and financing. Companies usually publish four basic financial statements, as follows: BALANCE SHEET – reports the amount of assets, liabilities, and stockholders’ equity of an accounting entity at a point in time. INCOME STATEMENT – reports the revenues less the expenses of the accounting period. STATEMENT OF STOCKHOLDERS’ EQUITY – reports the changes in each of the company’s stockholders’ equity accounts, including the change in the . | Chapter 1 Financial Statements and Decisions McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 1: Financial Statements and Business Decisions The Accounting System The accounting system collects and processes financial information about an organization and reports that information to decision makers. The accounting system provides financial accounting reports which include periodic financial statements and related disclosures to external decision makers. These decision-makers include investors, creditors, suppliers, customers, union representatives, and all other interested parties. The accounting system also provides managerial accounting reports including detailed plans and continuous performance reports. These reports are used by internal decision makers throughout the organization to make decisions about pricing, production, quality, and numerous other day-to-day activities. The Four Basic Financial Statements BALANCE SHEET – .
