1. Introduction to financial accounting fundamentals

Statement of Profit and Loss

Shows the financial performance of the entity during a certain period of time.

Statement of Financial Position

Shows the financial structure (assets, liabilities, equity) at a specific snapshot in time.

Statement of changes in equity

Reconciles the owner’s interest from the start to end of the period.

Statement of cash flows

Shows cash movements in and out of the business

The accounting policies

The rules followed in preparing the financial statements. It is based on the requirements of accounting standards

Who must financial information be useful to?

Must be useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.

What are the two fundamental qualitative characteristics of financial information?

Relevance and faithful representation

What are the enhancing qualitative characteristics?

Comparability, understandability, verifiability, and timeliness.

Why do we need accounting standards?

To compare performance between firms and be cost-effective

What is IFRS?

An international, principles-based standard set by a non-for-profit board, used in 144 of 167 jurisdictions.

What is US GAAP?

A national, rules-based US standard spanning ~25,000 detailed pages.

Why do sole traders primarily use financial statements

Personal tax returns or bank loans

Do limited companies/corporations have to upload financial statements?

Yes. They must publicly file audited financial statements that comply with GAAP or IFRS framework rules.