Chapter1AccountingInformationforDecisionMakingIntroductionTheprimaryobjectiveofaccountingistoprovideinformationthatisusefulinmakinggooddecisions,andasaresultofgooddecisions,societalprosperityandwelfareismaximized.Accountingissometimescalledthe“l(fā)anguageofbusiness.”PrimaryGoalsInordertodevelopyourabilitytounderstandanduseaccountinginformation,youneedtounderstandthefollowing:Thenatureofeconomicactivitiesthataccountinginformationdescribes.Theassumptionsandmeasurementtechniquesinvolvedindevelopingaccountinginformation.Theinformationthatismostrelevantformakingvarioustypesofdecisions.TypesofAccountingInformation:FinancialFinancialAccountingInformationdescribesthefinancialresources,obligations,andactivitiesofaneconomicentity.Assistsexternaluserssuchasinvestorsandcreditorsinthedecision-makingprocess.Isoftencalled“general-purpose”accountinginformation.TypesofAccountingInformation:ManagementManagementAccountingInvolvesthedevelopmentandinterpretationofaccountinginformationformanagement.Informationcanbespecificallytailoredtomanagement’sneedsinordertoassistinthedecision-makingprocess.Reportsareonlyprovidedtointernalusers.KEYPOINTBecausethefocusofthistextisintroductoryaccounting,andbecausetaxaccountingisquitecomplex,coverageoftaxaccountingsubjectsisdeferredtosubsequentaccountingcourses.TaxAccountingInformationmustconformwithincometaxreportingrequirements.Lawsandregulationsareoftendifferentfromthoseunderlyingthepreparationoffinancialaccountinginformation.TypesofAccountingInformation:TaxInformationSystemsAninformationsystemconsistsofthepersonnel,procedures,technology,andrecordsusedbyanorganization(1)todevelopinformationand(2)tocommunicatethisinformationtodecisionmakers.AccountingasanInformationSystemBasicFunctionsofanInformationSystemEveryaccountingsystemperformsthefollowingbasicfunctions:Interpretandrecordtheeffectsofbusinesstransactions.Classifytheeffectsofsimilartransactionstocomputetotalstobeusedinreports.Summarizeandcommunicatetheinformationcontainedinthesystemtodecisionmakers.ComponentsofInternalControlControlEnvironmentRiskAssessmentControlActivitiesInformationandCommunicationMonitoringControlEnvironmentSetsthetonefortheorganization.Organizationalcommitmenttoethicalvalues.Independenceoftheboardofdirectors.Appropriateassignmentofresponsibility.Developmentandretentionofcompetentemployees.Accountabilityatalllevels.RiskAssessmentIdentifying,analyzing,andmanagingrisksthatposeathreattotheachievementoforganizationalgoals.Involvestheidentificationofrisksandtheimplementationofriskmitigationtechniques.ControlActivitiesPoliciesandproceduresestablishedbymanagementtoaddressrisks.Examplesinclude:ApprovalsReconciliationsReviewsSegregationofdutiesSafeguardingassetsInformationandCommunicationDevelopinginformationsystemstocaptureandcommunicateoperational,financial,andcompliance-relatedinformation.Capturingbothinternalandexternalinformation.InformationandCommunication(cont.)Facilitatestheflowofinformation:Downstream(frommanagementtoemployees)Upstream(fromemployeestomanagement)AcrosstheorganizationMonitoringEvaluatetheeffectivenessofinternalcontrols.Accomplishthroughongoingmanagementandsupervisoryactivities.KEYPOINTTheNewYorkStockExchange(NYSE)requiresalllistedcompaniestomaintainaninternalauditfunction.ExternalUsersofAccountingInformationExamplesinclude:OwnersCreditorsPotentialinvestorsLaborunionsGovernmentalagenciesSuppliersCustomersTradeassociationsGeneralpublicCopyright?2021McGraw-HillEducation.Allrightsreserved.NoreproductionordistributionwithoutthepriorwrittenconsentofMcGraw-HillEducation.ObjectivesofExternalFinancialReportingPrimaryFinancialStatementsBalancesheet:showswherethecompanystandsinfinancialtermsonaspecificdate;alsocalledthestatementoffinancialposition.Incomestatement:showsthedetailsofacompany’sprofit-relatedactivitiesoveraperiodoftime.PrimaryFinancialStatements(cont.)Statementofcashflows:showsthedetailsofacompany’sactivitiesinvolvingcashduringaperiodoftime.NOTEYouwilllearnmoreabouteachofthesefinancialstatementsinfuturechapters.CharacteristicsofExternallyReportedInformationFinancialReporting—AMeansAmeanstoanend;notanendinandofitself.Improvesthequalityofdecisionmakingforoutsideusers.Helpstocreateprosperoussociety.FinancialReportingvs.FinancialStatementsFinancialstatementsareasubsetofthebroaderconceptoffinancialreporting.Characteristics(cont.):HistoricalFinancialreportingalsoincludesothercommunicationstoexternalpartiesincludingpressreleases,disclosures,andotheropencommunications.HistoricalinNatureFinancialstatementsreporteventsforanaccountingperiodthathasalreadyoccurred.Focusesonthepastmorethanthefuture.Characteristics(cont.):InexactInexactandApproximateMeasuresAccountinginformationisoftenbasedonestimates,judgments,andassumptionsaboutthepastandthefuture.Thischaracteristicisoftenmisunderstood.General-PurposeAssumptionInformationisnottailoredforaspecificuser.Thesamefinancialreportingpackageisavailableformultipleusergroups.Characteristics(cont.):ExplanationExplanationValueisenhancedbymanagementexplanations.Qualitativeinformationassistsininterpretingthefinancialreports.UsersofInternalAccountingInformationExamplesinclude:BoardofdirectorsChiefexecutiveofficer(CEO)Chieffinancialofficer(CFO)VicepresidentsBusinessunitmanagersPlantmanagersStoremanagersLinesupervisorsSimpleOrganizationalChartObjectivesofManagementAccountingInformationHelpmanagementachievetheorganization’smissionandgoals.Evaluateandrewarddecision-makingperformance.KEYPOINTManycompanieshavearewardsystemlinkedtoperformanceasmeasuredbytheaccountingsystem.CharacteristicsofManagementAccountingInformationTimelinessTimelyinformationisneededforplanningandcontrollingbusinessactivities.Managementcansavemoneyandmakebetterdecisionsbybeingabletoactquickly.IdentityofDecisionMakerTherightpeopleneedtherightinformationtomakedecisionsandcorrectproblems.Characteristics(cont.):FutureOrientedFutureOrientedPurposeofgeneratingmanagementinformationistoaffectthefuture.Motivatemanagementtomakefuturedecisionstoachievetheorganization’sgoals.EfficiencyandEffectivenessMeasurestheefficiencyandeffectivenessofresourceusage.Characteristics(cont.):AMeansAMeansAmeanstoanend;notanendinandofitself.Ultimateobjectiveistodesignanduseanaccountingsystemthathelpsmanagementachievethegoalsandobjectivesoftheenterprise.IntegrityofAccountingInformationIntegrityreferstothefollowingqualities:CompleteUnbrokenUnimpairedSoundHonestSincereEnhancingIntegrityTheintegrityofaccountinginformationisenhancedinthreeprimaryways:InstitutionalfeaturesProfessionalaccountingorganizationsPersonalcompetence,judgment,andethicalbehaviorIntegrity:GAAPInstitutionalFeaturesGenerallyAcceptedAccountingPrinciples(GAAP)Providesthegeneralframeworkfordeterminingwhatinformationisincludedinthefinancialstatementsandhowthisinformationispreparedandpresented.Originatesfromacombinationoftradition,experience,andofficialdecree.Maychangeovertime.Integrity:SECInstitutionalFeaturesSecuritiesandExchangeCommission(SEC)Governmentalagencywiththelegalpowertoestablishaccountingprinciplesandfinancialreportingrequirementsforpubliclyownedcorporations.DelegatesstandardsettingresponsibilitytotheFASB(discussedonnextslide).Reviewsthefinancialstatementsofpubliclyownedcorporations.Mayinitiatelegalactionagainstcompanies.Integrity:FASBInstitutionalFeaturesFinancialAccountingStandardsBoard(FASB)Independentrule-makingbody.RecognizedasthemostauthoritativesourceofGAAP.MaintainstheAccountingStandardsCodificationwhichincludesallstandardsandrepresentsanofficialexpressionofGAAP.Integrity:IASBInstitutionalFeaturesInternationalAccountingStandardsBoard(IASB)London-basedpanelofeliteprofessionalswithexpertknowledgeofaccountingmethodsusedinthemostvibrantcapitalmarkets.IssuesInternationalFinancialReportingStandards(IFRS).Morethan100countries,includingthoseintheEuropeanUnion,requirecompaniestofollowIASBstandards.Integrity:IASB(cont.)InstitutionalFeaturesInternationalAccountingStandardsBoard(IASB)TheSECacceptsfinancialstatementspreparedusingIASBstandardsfromforeigncompaniesthatarecross-listedonaU.S.stockexchange.TheAICPA,whichmaintainsjurisdictionoverprivatecompanyreporting,acceptseitherFASBstandardsorIASBstandardsasauthoritativesourcesofaccountingprinciples.CaseinPoint:IFRSIftheUnitedStatesmovestoIFRS,itlikelywouldrequiresignificantchangestoaccountingsystems,controls,andprocedures.Forexample,IFRSrequiresthatanentityaccountforsimilartransactionsinanidenticalmannerregardlessofwherethetransactionoccursintheentity,arequirementthatdoesnotexistunderU.S.GAAP.Therefore,ifIFRSbecomesmandatoryforU.S.publiccompanies,companieswouldhavetodevelopalistingofalloftheirtransactionsandhowtheyareaccountedforthroughouttheentity.Integrity:PCAOBInstitutionalFeaturesPublicCompanyAccountingOversightBoard(PCAOB)BoardcreatedbytheSarbanes-OxleyActof2002.Chargedwithoversightofthepublicaccountingprofession.Setsauditingstandardsforauditsofpubliclytradedcompanies.Inspectsthequalityofaudits.Conductsinvestigationsandadministerspenalties.Integrity:AuditsInstitutionalFeaturesFinancialStatementAuditsAnexaminationofacompany’sfinancialstatements,designedtodeterminethefairnessofthestatements.Mustbeconductedbyanindependentcertifiedpublicaccountant(CPA).FinancialstatementsarejudgedbasedonthestandardsofGAAP.KeyPointFortheauditortoreachtheconclusionthatthefinancialstatementsarefairrepresentationsofacompany’sfinancialposition,resultsofoperations,andcashflows,thestatementsmustcomplyinallimportantwayswithgenerallyacceptedaccountingprinciples.Integrity:LegislationInstitutionalFeaturesLegislationCongresspassedtheSarbanes-OxleyActin2002.Auditorsareprohibitedfromprovidingcertainnonauditservicestotheirauditclientstopreserveobjectivity.Boardofdirectorsandauditcommitteesaretaskedwithadditionaloversightresponsibilities.Chiefexecutiveofficers(CEOs)andchieffinancialofficers(CFOs)mustcertifythefairnessofthecompany’sfinancialstatements.Integrity:AICPAProfessionalOrganizationsSeveralprofessionalaccountingorganizationsplayanactiveroleinimprovingthequalityofaccountinginformationthatisusedbyinvestors,creditors,management,andothers.AmericanInstituteofCPAs(AICPA)Missionistoprovidememberswiththemostrelevantknowledge.ConductsresearchandworkscloselywiththeFASBintheestablishmentandinterpretationofGAAP.Integrity:IMAInstituteofManagementAccountants(IMA)Providesaforumforresearch,practicedevelopment,education,knowledgesharing,andtheadvocacyofthehighestethicalandbestbusinesspracticesinmanagementaccountingandfinance.Influencesconceptsandethicalpracticesformanagementaccountingandfinancialmanagement.OfferstheCertifiedManagementAccountant(CMA)designation.Integrity:IIAInstituteofInternalAuditors(IIA)Primaryinternationalprofessionalassociationdedicatedtothepromotionanddevelopmentofthepracticeofinternalauditing.Offersprofessionaldevelopmentthroughconferencesandseminars.Providesauditspecialtyservicesandindustry-specificauditingprogramsaswellasqualityassurancereviewandbenchmarkingservices.Integrity:AAAAmericanAccountingAssociation(AAA)Missionistofurtherthedisciplineandprofessionofaccountingthrougheducation,research,andservice.Madeupprimarilyofaccountingeducatorswhofocusonimprovingthequalityofaccountingeducation.Integrity:COSOCommitteeofSponsoringOrganizationsoftheTreadwayCommission(COSO)Private-sectororganizationdedicatedtoprovidingthoughtleadershipthroughthedevelopmentofcomprehensiveframeworksandguidanceonenterpriseriskmanagement,internalcontrol,andfrauddeterrencedesignedtoimproveorganizationalperformanceandgovernanceandtoreducetheextentoffraudinorganizations.Bestknownforitsworkindevelopingthestandardsforevaluatinginternalcontrol.Integrity:CompetenceCompetence,Judgment,andEthicalBehaviorToillustratetheimportanceofcompetence,professionaljudgment,andethicalbehaviorinthepreparationoffinancialstatements,considerthefollowingcomplexissuesthatmustbeaddressedbytheaccountant:Atwhatpointshouldanenterpriseaccountfortransactionsthatcontinueoveralongperiodoftime,suchasalong-termcontracttoconstructaninterstatehighway?Integrity:Competence(cont.)Whatconstitutesadequatedisclosureofinformationthatwouldbeexpectedbyareasonablyinformeduseroffinancialstatements?Atwhatpointareacompany’sfinancialproblemssufficienttoquestionwhetheritwillbeabletoremaininbusinessfortheforeseeablefuture,andwhenshouldthatinformationbecommunicatedtousersofitsfinancialstatements?Whenhaveeffortsbymanagementtoimprove(thatis,“windowdress”)itsfinancialstatementscrossedalinethatisinappropriate,makingthefinancialstatementsactuallymisleadingtoinvestorsandcreditors?Integrity:CPACertificationinagivenareasignalsalevelofcompetencetofinancialusersanddecisionmakers.CertifiedPublicAccountant(CPA)Licensedbythestate.Musthavecompleted150semesterhoursofcollegeworkwithamajorinaccounting.MustpasstheCPAexam.Musthaveadequateprofessionalexperience.Mustspendatleast40hoursofcontinuingprofessionaleducationeachyear.Integrity:CMAandCIACertifiedManagementAccountant(CMA)IssuedbytheIMA.Signifiesprofessionalcompetenceintheareaofmanagerialaccounting.RequirementsaresimilartothoseoftheCPA.CertifiedInternalAuditor(CIA)IssuedbytheIIA.Signifiesprofessionalcompetenceintheareaofinternalauditing.RequirementsaresimilartothoseoftheCPA.YourTurnYouareaprofessionalaccountantworkingforapublicaccountingfirmandfindyourselfinadifficultsituation.Youhavediscoveredsomeirregularitiesinthefinancialrecordsofyourfirm’sclient.Youareuncertainwhethertheseirregularitiesaretheresultofcarelessnessonthepartofthecompany’semployeesorrepresentintentionalstepstakentocoverupquestionableactivities.Youapproachyoursuperioraboutthisandsheindicatesthatyoushouldignoreit.Herresponseis,“Thesethingshappenallofthetimeandusuallyareprettyminor.Weareonaverytighttimescheduletocompletethisengagement,solet’sjustkeepoureyesonourgoaloffinishingourworkbytheendofthemonth.”Whatwouldyoudo?Integrity:AICPACodeofConductExcerptsfromkeypartsoftheAICPACodeofProfessionalConduct:I.ResponsibilitiesIncarryingouttheirresponsibilitiesasprofessionals,membersshouldexercisesensitiveprofessionalandmoraljudgmentsinalltheiractivities.II.ThePublicInterestMembersshouldaccepttheobligationtoactinawaythatwillservethepublicinterest,honorthepublictrust,anddemonstratecommitmenttoprofessionalism.Integrity:AICPACode(cont.)III.IntegrityTomaintainandbroadenpublicconfidence,membersshouldperformallprofessionalresponsibilitieswiththehighestsenseofintegrity.IV.ObjectivityandIndependenceAmembershouldmaintainobjectivityandbefreeofconflictsofinterestindischargingprofessionalresponsibilities.Amemberinpublicpracticeshouldbeindependentinfactandappearancewhenprovidingauditingandotherattestationservices.Integrity:AICPACode(concluded)V.DueCareAmembershouldobservetheprofession’stechnicalandethicalstandards,strivecontinuallytoimprovecompetenceandthequalityofservices,anddischargeprofessionalresponsibilitytothebestofthemember’sability.VI.ScopeandNatureofServicesAmemberinpublicpracticeshouldobservethePrinciplesoftheCodeofProfessionalConductindeterminingthescopeandnatureofservicestobeprovided.CareersinAccountingAccountantstendtospecializeinspecificfields,asdothemembersofotherprofessions.Careeropportunitiesinaccountingmaybedividedintofourbroadareas:PublicaccountingManagementaccountingGovernmentalaccountingAccountingeducationWhataboutBookkeeping?Bookkeepingistheclericalsideofaccounting—therecordingofroutinetransactionsandday-to-dayrecordkeeping.Professionalaccountantsareinvolvedmorewiththeinterpretationanduseofaccountinginformationthanwithitsactualpreparation.AccountingasaStepping-StoneAnaccountingbackgroundisinvaluableforkeypositionsinmanagementoradministration,becausetopmanagementworkscontinuouslywithissuesdefinedanddescribedinaccountingtermsandconcepts.I’mNotanAccountingMajorAccountingisthelanguageofbusiness,andtryingtorunabusinesswithoutunderstandingaccountinginformationisanalogoustotryingtoplaysportswithoutunderstandingtherules.Accountingknowledgeishelpfulinmanyaspectsofyourpersonallifeaswell,includingpersonalbudgeting,retirementandcollegeplanning,leaseversusbuydecisions,andevaluationofloantermsandinvestmentopportunities.Ethics,Fraud,&CorporateGovernanceCorporategovernanceentailscorporatestructuresandprocessesforoverseeingthecompany’saffairstoensurethatthecompanyisbeingmanagedwiththebestinterestsofshareholdersinmind.DennisKozlowski,theformerCEOofTyco,wassentencedto81/3to25yearsinprisonforhisconvictionforconspiracy,securitiesfraud,andfalsifyingrecords.Copyright?2021McGraw-HillEducation.Allrightsreserved.NoreproductionordistributionwithoutthepriorwrittenconsentofMcGraw-HillEducation.LearningObjectiveSummaryLO1-1LO1-1:Discussaccountingasthelanguageofbusinessandtheroleofaccountinginformationinmakingeconomicdecisions.

Accountingisthemeansbywhichinformationaboutanenterpriseiscommunicatedandissometimesreferredtoasthelanguageofbusiness.Manydifferentusershaveneedforaccountinginformationinordertomakeimportantdecisions.Theseusersincludeinvestors,creditors,management,governmentalagencies,laborunions,andothers.Becausetheprimaryroleofaccountinginformationistoprovideusefulinformationfordecision-makingpurposes,itissometimesreferredtoasameanstoanend,withtheendbeingthedecisionthatishelpedbytheavailabilityofaccountinginformation.LearningObjectiveSummaryLO1-2LO1-2:Discussthesignificanceofinformationsystemsingeneratingreliableaccountinginformationandunderstandthefivecomponentsofinternalcontrol.

Informationsystemsarecriticaltotheproductionofqualityaccountinginformationonatimelybasisandthecommunicationofthatinformationtodecisionmakers.Whiletherearedifferenttypesofinformationsystems,theyallhaveonecharacteristicincommon—tomeettheorganization’sneedsforaccountinginformationasefficientlyaspossible.PertheCOSOframework,thefiveelementsofinternalcontrolare:(1)controlenvironment,(2)riskassessment,(3)controlactivities,(4)informationandcommunication,and(5)monitoringactivities.LearningObjectiveSummaryLO1-3LO1-3:Explaintheimportanceoffinancialaccountinginformationforexternalparties—primarilyinvestorsandcreditors—intermsoftheobjectivesandthecharacteristicsofthatinformation.

Theprimaryobjectivesoffinancialaccountingaretoprovideinformationthatisusefulinmakinginvestmentandcreditdecisions;inassessingtheamount,timing,anduncertaintyoffuturecashflows;andinlearningabouttheenterprise’seconomicresources,claimstoresources,andchangesinclaimstoresources.Someofthemostimportantcharacteristicsoffinancialaccountinginformationareitisameanstoanend,itishistoricalinnature,itresultsfrominexactandapproximatemeasuresofbusinessactivity,anditisbasedonageneral-purposeassumption.LearningObjectiveSummaryLO1-4LO1-4:Explaintheimportanceofaccountinginformationforinternalparties—primarilymanagement—intermsoftheobjectivesandthecharacteristicsofthatinformation.

Accountinginformationisusefultotheenterpriseinachievingitsgoals,objectives,andmission;assessingpastperformanceandfuturedirections;andevaluatingandrewardingdecision-makingperformance.Someoftheimportantcharacteristicsofinternalaccountinginformationareitstimeliness,itsrelationshiptodecision-makingauthority,itsfutureorientation,itsrelationshiptomeasuringefficiencyandeffectiveness,andthefactthatitisameanstoanend.LearningObjectiveSummaryLO1-5LO1-5:Discusselementsofthesystemofexternalandinternalfinancialreportingthatcreateintegrityinthereportedinformation.

Integrityoffinancialreportingisimportantbecauseofthereliancethatisplacedonfinancialinformationbyusersbothoutsideandinsidethereportingorganization.Importantdimensionsoffinancialreportingthatworktogethertoensureintegrityininformationareinstitutionalfeatures(accountingprinciples,internalstructure,audits,andlegislation);professionalorganizations(theAICPA,IMA,IIA,AAA);andthecompetence,judgment,andethicalbehaviorofindividualaccountants.LearningObjectiveSummaryLO1-6LO1-6:Identifyanddiscussseveralprofessionalorganizationsthatplayimportantrolesinpreparingandcommunicatingaccountinginformation.

TheFASB,IASB,PCAOB,andSECareimportantorganizationsintermsofstandardsettingintheUnitedStates.TheFASBandIASBareprivate-sectororganizationsthatestablishaccountingstandardsforpublicandprivatecompanies.ThePCAOBoverseespublicaccountingfirms,includingsettingstandardsforauditsofpubliccompanies.TheSECisagovernmentalentitythatoverseesU.S.publiccompaniesandthecapitalmarkets.LearningObjectiveSummaryLO1-7LO1-7:Discusstheimportanceofpersonalcompetence,professionaljudgment,andethicalbehavioronthepartofaccountingprofessionals.

Personalcompetenceandprofessionaljudgmentare,perhaps,themostimportantfactorsinensuringtheintegrityoffinancialinformation.Competenceisdemonstratedbyone’seducationandprofessionalcertification(CPA,CMA,CIA).Professionaljudgmentisimportantbecauseaccountinginformationisoftenbasedoninexactmeasurementsandassumptionsarerequired.Ethicalbehaviorreferstothequalityofaccountantsbeingmotivatedto“dotherightthing.”LearningObjectiveSummaryLO1-8LO1-8:Describevariouscareeropportunitiesinaccounting.

Accountingopensthedoortomanycareeropportunities.Publicaccountingisthesegmentoftheprofessionwhereprofessionalsofferaudit,tax,andconsultingservices.Management,ormanagerial,accountingreferstothatsegmentoftheaccountingprofessionwhereprofessionalaccountantsworkforindividualcompaniesinawidevarietyofcapacities.Manyaccountantsworkforgovernmentalagencies.Someaccountantschooseeducationasacareerandworktopreparestudentsforfuturecareersinoneoftheothersegmentsoftheaccountingprofession.Whilekeepingdetailedrecords(thatis,bookkeeping)isapartofaccounting,itisnotadistinguishingcharacteristicofacareerinaccounting;infact,manyaccountingcareersinvolvelittleornobookkeeping.Accountingskillsareimportanttonon-accountingmajorsandtoallstudentsintheirpersonallives.EndofChapter1Copyright?2021McGraw-HillEducation.Allrightsreserved.NoreproductionordistributionwithoutthepriorwrittenconsentofMcGraw-HillEducation.Chapter2BasicFinancialStatementsIntroductiontoFinancialStatementsInvestorsandcreditorsareinterestedinthecashflowsthattheyexpecttoreceiveinthefuture.Creditorsareinterestedintheabilityofanenterprisetomeetitspaymentobligations,whichmayincludepaymentofinterest.Investorsareinterestedinthemarketvalueoftheirstockholdingsandanydividendstheymightreceive.FinancialStatementsAfinancialstatementissimplyadeclarationofwhatisbelievedtobetrueaboutanenterprise,communicatedintermsofamonetaryunit,suchasthedollar.Whenaccountantspreparefinancialstatements,theyaredescribinginfinancialtermscertainattributesoftheenterprisethattheybelievefairlyrepresentitsfinancialactivities.Statementoffinancialposition(oftenreferredtoasthebalancesheet)IncomestatementStatementofcashflowsThreePrimaryFinancialStatementsKEYPOINTWhileexaminingthefinancialstatementsinthischapter,wewillbeassumingthecorporateformofbusinessownership.FinancialStatements:BalanceSheetStatementofFinancialPosition(BalanceSheet)Describeswheretheenterprisestandsataspecificdate.Asnapshotofthebusinessinfinancialordollartermsthatshowswhattheenterpriselookslikeataspecificdate.FinancialStatements:IncomeStatementIncomeStatementAnactivitystatementthatshowstherevenuesandexpensesforadesignatedperiodoftime.Revenuesgeneratepositivecashflowsthroughtransactionswithcustomers.Expensesgeneratenegativecashflows(outflowsofcash)throughbusinessactivities.FinancialStatements:StatementofCashFlowsStatementofCashFlowsDetailsthecompany’ssourcesandusesofcashduringanaccountingperiod.Enablesthefinancialstatementusertobetterunderstandthechangeinthecashbalanceshownonthecomparativebalancesheet.ASta