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Financial Accounting for Dummies

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Financial Accounting For Dummies
From Financial Accounting For Dummies by Maire Loughran
Financial accounting is the process of preparing financial statements for a business. The three key financial statements are the income statement, balance sheet, and statement of cash flows, and they serve two broad purposes: to report on the current financial position of the company, and to show how well the company performs over a period of time. Investors, creditors, and other interested parties rely on such information to find out whether a business is making or losing money, and they depend on financial accountants to help ensure that these statements are materially correct and understandable.
Accounting Details in Different Kinds of Financial Statements
The three key financial statements are the income statement, balance sheet, and statement of cash flows. All three record the same daily accounting transactions occurring in a business, but each presents the facts slightly differently.
• Income statement: The income statement shows a company’s results of operations. Using this statement, you can see if a business has income or loss during the financial period. All the company’s revenue, expenses, gains, and losses appear on this financial statement.
• Balance sheet: The balance sheet shows the health of a business from the day it started operations to the specific date of the balance sheet report.Therefore, it reflects the business’s financial position. The balance sheets lists the company’s assets (resources such as cash and inventory), liabilities (claims against the assets), and equity (the difference between assets and liabilities, which reflects the owners’ total investment in the business).
• Statement of cash flows: This financial statement reveals how a company is bringing in and spending its cash. Investors and potential creditors use this information to

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