Lesson One: External Financial Reporting
This lesson covers section one, which is about financial
accounting. It provides an overview of the general purpose
financial statements, the users of financial statements, the
features of financial statements, the approval basis of
accounting, and the cash basis.
General Purpose Financial Statements
The objective of the general purpose financial statements is to
provide financial information about a reporting entity that is
useful in making decisions about providing resources to the
ending. The financial statements are relevant since they
provide financial information that is necessary to the users of
financial statements like investors and creditors to make
informed decisions about the end people.
The financial statements provide information about economic
resources (assets), claims to the entity (liabilities), and
changes in those resources and claims (equity). The accounting
equation is assets = liabilities + equity.
Users of Financial Statements
Users of the financial statements may be classified into
external users and internal users. External users are people
outside of the business who use accounting information, like
suppliers, investors, potential investors, creditors, financial
advisors, analysts, stock exchanges, regulatory agencies, and
tax authorities. On the other hand, internal users are people
within the business entity or organization who use the
accounting information, like management, owners, and
employees.
Users with direct interest usually invest in or manage the
business, while users with indirect interest usually advise,
influence, or represent users with direct interests.
Features of Financial Statements
The financial statements are the primary means of
communicating financial information to external parties. The
full set of financial statements includes the statement of
financial position or the balance sheet, the statement of profit
or loss and other comprehensive income or simply income
statement, the statement of changes in equity, the statement
of cash flows, and the notes to the financial statements.
This lesson covers section one, which is about financial
accounting. It provides an overview of the general purpose
financial statements, the users of financial statements, the
features of financial statements, the approval basis of
accounting, and the cash basis.
General Purpose Financial Statements
The objective of the general purpose financial statements is to
provide financial information about a reporting entity that is
useful in making decisions about providing resources to the
ending. The financial statements are relevant since they
provide financial information that is necessary to the users of
financial statements like investors and creditors to make
informed decisions about the end people.
The financial statements provide information about economic
resources (assets), claims to the entity (liabilities), and
changes in those resources and claims (equity). The accounting
equation is assets = liabilities + equity.
Users of Financial Statements
Users of the financial statements may be classified into
external users and internal users. External users are people
outside of the business who use accounting information, like
suppliers, investors, potential investors, creditors, financial
advisors, analysts, stock exchanges, regulatory agencies, and
tax authorities. On the other hand, internal users are people
within the business entity or organization who use the
accounting information, like management, owners, and
employees.
Users with direct interest usually invest in or manage the
business, while users with indirect interest usually advise,
influence, or represent users with direct interests.
Features of Financial Statements
The financial statements are the primary means of
communicating financial information to external parties. The
full set of financial statements includes the statement of
financial position or the balance sheet, the statement of profit
or loss and other comprehensive income or simply income
statement, the statement of changes in equity, the statement
of cash flows, and the notes to the financial statements.
