Читать книгу Financial Accounting For Dummies - Maire Loughran - Страница 37

You may have heard accounting referred to as the “language of business.” That’s because financial statements are the end result of the accounting process, and these written reports are used by many different people and entities to make their own important investment and business decisions.

As I explain in Chapter 1, financial accounting is the process of classifying and recording all events that take place during the normal course of a company’s business. The results of these events are arranged on the correct financial statement and reported to the external users of the financial statements. External users include investors, creditors, banks, customers, and regulatory agencies such as the Internal Revenue Service (IRS) and the U.S. Securities and Exchange Commission (SEC).

External users of the financial statements differ from internal users in that the external user is generally less educated than the internal user. When I say less educated, I’m not referring to this person’s formal education; an external user may very well hold a PhD from an Ivy League school! What I mean is that the external user is less educated about the company’s operations. The external user usually has no clue what is going on within the company because this person isn’t privy to the day-to-day operations.

In contrast, the internal users of the financial statements are employees, department heads, and other company management — all folks who work at the business.

The facts and figures shown on the financial statements give the people and businesses using them a bird’s-eye view of how well the business is performing. For example, looking at the balance sheet, you can see how much debt the business owes and what resources it has to pay that debt. The income statement shows how much money the company is making, both before and after business expenses are deducted. Finally, the statement of cash flows shows how well the company is using its cash. A company can bring in a boat-load of cash, but if it’s spending that cash in an unwise manner, it’s not a healthy business.

This chapter provides only a brief look at each financial statement. While you prepare each statement using the same accounting facts (see Chapter 5), each one presents those facts in a slightly different way. I provide more detailed information about the three financial statements in other sections of this book: Look to Part 3 for balance sheet info, Chapter 10 for the lowdown on the income statement, and Chapter 11 for a discussion of counting dollars and cents on the statement of cash flows.