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Accounting and Finance: An Introduction - McLaney and Atrill (2018) - Chapter 2 (Summary)
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Finance and Accounting – Week 1Chapter 2 - Measuring and reporting financial position
The major financial statements - an overview
- Aim to provide a picture of the financial position and performance of a business
- Produce financial statements on a regular, recurring basis
Statement of cash flows: What cash movements took place?
Income statement (profit and loss accounts): How much wealth was generated?
Statement of financial position (balance sheet): What is the accumulated wealth of the
business at the end of the period and what form does it take?
- Together they provide an overall picture of the financial health of the business
- Cash is a vital resource to function effectively, e.g. required to meet debts
- Income statement and statement of cash flows are both concerned with measuring
flows during a particular period
- Statement of financial position is concerned with financial position at a particular
moment
- For external users, financial statements are normally backward-looking because they
are based on information concerning past events and transactions
- For management decision-making occasionally forward-looking
- Relationship between the major financial statements
The statement of financial position
- Shows the form in which the wealth of a business is held and how much is held in
each form; shows sources of funding for that wealth
Assets = resource held by a business; to qualify as an asset for the financial statements:
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