Reporting Financial Results

Preparing Financial Statements
The ultimate purpose of the accounting process is to prepare financial statements. Everything else, all the routine journal entries & posting, corrections and adjusting entries finally culminate in an organized set of information that follows a set of rules known as GAAP.

GAAP gives us guidance as to what should be included in the financial statements, and how things should be reported and disclosed. The financial statements must include three specific reports, and notes that describe and disclose certain additional information.

The required elements of financial statements:
The Income Statement
The Balance Sheet
The Statement of Cash Flows
Notes to the Financial Statements

Optional (but recommended) financial statements:
The Statement of Retained Earnings
The Statement of Stockholders’ Equity
[Only one optional statement will be included in a set of financial statements]

Although GAAP gives us guidance, it also allows for a considerable amount of flexibility in presenting financial information. The Notes must accompany the other financial information, and includes disclosure about accounting principles, lawsuits, lease obligations, concentrations of receivables, and other information the FASB considers necessary for adequate disclosure of important information.

The Accounting Cycle revisited
1) Capture and Record business transactions,
2) Classify transactions into appropriate Accounts,
3) Post transactions to their individual Ledger Accounts,
4) Summarize and Report the balances of Ledger Accounts in financial statements.
5) Post adjusting and closing journal entries.
6) Prepare a post-closing trial balance