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Accounting: Analyzing Financial Statements
Accounting is the measurement, disclosure or provision of assurance about financial information primarily used by managers, investors, tax authorities and other decision makers to make resource allocation decisions within companies, organizations, and public agencies. The terms derive from the use of financial accounts. Accounting is also widely referred to as the "language of business" (Wikipedia, 2007). Accounting standards must represent the economic substance of business transactions and provide information in a neutral manner to all financial market participants. Accounting attempts to create accurate financial reports that are useful to managers, regulators, and other stakeholders such as shareholders, creditors, or owners. The day to day record keeping involved in this process is known as bookkeeping.
There are several branches of accounting. Financial accounting is one branch of accounting and has historically involved processes by which financial information about a business is recorded, classified, summarized, interpreted, and communicated. For public companies this information is generally publicly accessible. On the other hand, management accounting information is used within an organization and is usually confidential and accessible only to a small group which is typically the decision makers of a business.
Financial statements and managerial reports are formal records of a business' financial activity. These statements provide an overview of a business' profitability and financial condition in both short and long term. The four basic types of financial statements are balance sheets, income statements, cash flow statements, and statement of retained earnings. The balance sheets reports on the company’s assets, liabilities and net equity as of a given point in time. Income statements report on a company’s results of operations over a period of time. Cash flow statements...
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