accounting exam 1 sg - The Annual Report- The annual report...

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The Annual Report - The annual report always includes the financial statements introduced in this chapter. It also includes other important information such as management discussion and analysis (MD&A) section, notes to the financial statements, and an independent auditor’s report. Management discussion and analysis - a company’s ability to pay near term obligations, its ability to fund operations and expansion, and its results of operations. Management must highlight favorable or unfavorable trends and identify significant events and uncertainties that affect those three factors. Notes to the financial statements - clarify information presented in the financial statements, as well as expand upon it where additional detail is needed. Information in the notes des not have to be quantifiable. The notes are essential to understanding a company’s operating performance and financial position. Auditor’s report - report prepared by an independent outside auditor. It states the auditor’s opinion as to the fairness of the presentation of the financial position and results of operations and their conformance with generally accepted accounting standards. An auditor is and accounting pro who conducts an independent examination of a company’s financial statements. Only accountants who meet certain criteria and thereby attain the designation Certified Public Accountant (CPA) may perform audits. The 4 Basic Financial Statements : 1. Income Statement - shows how successful a business has performed during a period of time, report revenues and expenses in an income statement. Also used to predict the future by creditors. Amounts received from issuing stock are not revenues, and amounts paid as dividends are not expenses , therefore aren’t reported on the income statement. 2. Retained Earnings statement - Retained earnings is the net income retained in the corporation. The retained earnings statement shows the amounts and causes of changes in retained earnings during the period. The time period is the same as that covered by the income statement. Then the company adds net income and subtracts dividends to determine retained earnings at the end of the period. 3. Balance Sheet - reports assets and claims to those assets at a specific point in time. These claims are subdivided into two categories: claims of creditors and claims of owners. As noted earlier, claims of creditors are called liabilities. Claims of owners are called stockholders’ equity. 4. Statement of Cash Flows - to provide financial information about the cash receipts and cash payments of a business for a specific period of time. It also reports tae cash effects of a company’s operating, investing, and financing activities. Also shows the net increase or decrease in cash during the period, and the amount of cash at the end of the period.
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This test prep was uploaded on 04/06/2008 for the course ACCTG 230 taught by Professor Pearson during the Spring '07 term at Washington State University .

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accounting exam 1 sg - The Annual Report- The annual report...

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