1. Financial statements and reports

What happened to assets, earnings, dividends, and cash flows during the financial year?

Accounting practice in the United States follows the generally accepted accounting principles (GAAP) developed by the Financial Accounting Standards Board (FASB), which is a non-governmental, professional standards body that monitors accounting practices and evaluates controversial issues. The Securities and Exchange Commission (SEC) requires all publicly traded companies to periodically report their financial information.

A publicly held corporation must publish an annual report that contains the balance sheet, income statement, statement of cash flows, statement of stockholders equity, and other financial information for analysis.

The following table lists descriptions of the major financial statements and reports that a firm publishes. Identify the correct statement or report for each description.

Statement or Report Statement of cash flows Description Provides details about the flow of funds from operating, investing, and financing activities. Gives details about the firm's sales, costs, and profits for the past accounting period. Is required by the SEC and includes the audited document that shows the company's financial results for the past year and management's discussion about the future outlook and plans. Has three segments that when analyzed together give an idea of what the company owns and what it owes. Explains the changes in a company's stockholders' equity over the accounting year. Annual report Income statement Statement of stockholders' equity Balance sheet Accountants focus on creating financial statements, whereas finance professionals mostly use these statements to evaluate a firm and answer questions about its performance. Indicate which financial statement would be the most helpful in answering the questions in the following table: Balance Sheet Statement of Cash Flows How much cash is a firm generating through operating, investing, and financing activities? How much debt and equity has the firm issued to finance its assets? True or False: As long as the information reported follows the generally accepted accounting principles (GAAP) guidelines, accountants in a firm have the liberty to use personal judgment to report transactions in the firm's financial statements. True False