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Financial Statements and Their Purposes
What are the four financial statements?
The four financial statements are the Income Statement, the Statement of Changes in Owners Equity, the Balance Sheet, and the Cash Flow Statement (Celender, 2020).
What is the purpose of each financial statement?
The Income Statement shows the profit and loss balance for a certain period.
The Statement of Changes in Owners Equity is a short report that shows the starting and finishing balances of the owners equity for a certain period.
The Balance Sheet shows the current state of assets, liabilities, and owners equity of the business, as well as the final balance.
The Cash Flow Statement shows the movement of cash throughout the business. It includes the cash inflows and outflows for a certain period (Celender, 2020).
What are the ethical requirements of the preparation of these statements?
Financial reporting in the U.S. has to follow the Generally Accepted Accounting Principles (GAAP), such as regularity, consistency, and sincerity. However, integrity in practicing the rules is subject to the workers moral standards. The basic human requirements encourage reporting the truth about the current state of the business so that investors and clients could make the correct decision and adequately evaluate the risks. The timely matter is also crucial when preparing the financial statement. Using the old numbers to keep the company share price from falling is an unethical practice (Pandey, 2017).
What are the different governing bodies and legislation over accounting?
The authoritative accounting body in the U.S. is the Securities and Exchange Commission (SEC). It regulates the Accounting Standards Board (FASB), which develops GAAP. The local auditors then check whether the businesses follow the rules and provide reporting (Regulatory Bodies, 2020).
What types of companies must comply with accounting governance?
The accounting governance in the U.S. is done through the Generally Accepted Accounting Principles. By law, the companies that have to follow them include the public and publicly traded companies, as non-complying in these cases would lead to putting at risk investors and clients from outside of the companies. Facebook and Apple Inc. have to follow the GAAP as they operate within U.S. laws and are publicly traded (What is GAAP? 2020).
References
Celender, M. (2020). The Four Types of Financial Statements: Definition, Examples, Objectives. Accounting Basics for Students.
Pandey, A. (2017). Ethical issues of financial reporting. Open Access International Journal of Science & Engineering, 2(3), 47-50. Web.
Regulatory Bodies. (2020). National Association of Mutual Insurance Companies.
What is GAAP? (2020). Accounting.com.
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