ABSTRACT
Financial accounting is aimed at providing financial information to external stakeholders of the firm, such as shareholders and banks. This chapter discusses balance sheet, profit-and-loss statement and cash flow statement. The accounting cycle always starts with a beginning balance sheet. A balance sheet is a document designed to show the state of affairs of an enterprise at a particular date. At the end of the accounting period, usually one month or four weeks, the totals are recorded in the ledger. The ledger contains accounts which represent four defined categories of revenues, expenses, assets, and liabilities. Cash flows are the core transactions in a set of financial statements before any accounting judgements are made. Cash is comparatively easy to define and verify. Inventory is the only asset for which alternative valuation methods are considered acceptable. Taking a physical inventory every month would be very expensive and time-consuming.
