财务报表分析英文版.docx

财务报表分析英文版.docx

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财务报表分析英文版

A.MeasuringBusinessIncome

a.explainwhyfinancialstatementsarepreparedattheendoftheregularaccountingperiod.

MajorFinancialStatements:

∙Thebalancesheet:

providesa"snapshot"ofthefirm'sfinancialcondition.

∙Theincomestatement:

reportsonthe"performance"ofthefirm.

∙Thestatementofcashflows:

reportsthecashreceiptsandcashoutflowsclassifiedaccordingtooperating,investmentandfinancingactivities.

∙Thestatementofstockholder'sequity:

reportstheamountsandsourcesofchangesinequityfromtransactionswithowners.

∙Thefootnotesofthefinancialstatements:

allowusestoimproveassessmentoftheamount,timinganduncertaintyoftheestimatesreportedinthefinancialstatements.

Themostaccuratewaytomeasuretheresultsofenterpriseactivitywouldbetomeasurethematthetimeoftheenterprise'seventualliquidation.Business,government,investors,andvariousotherusergroups,however,cannotwaitindefinitelyforsuchinformation.Ifaccountantsdidnotprovidefinancialinformationperiodically,someoneelsewould.

Theperiodicityortimeperiodassumptionsimplyimpliesthattheeconomicactivitiesofanenterprisecanbedividedintoartificialtimeperiods.Thesetimeperiodsvary,butthemostcommonaremonthly,quarterly,andyearly.

Theinformationmustbereliableandrelevant.Thisrequiresthatinformationmustbeconsistentandcomparableovertimeandalsobeprovidedonatimelybasis.Theshorterthetimeperiod,themoredifficultitbecomestodeterminethepropernetincomefortheperiod.Amonth'sresultsareusuallylessreliablethanaquarter'sresults,andaquarter'sresultsarelikelytobelessreliablethanayear'sresults.Investorsdesireanddemandthatinformationbequicklyprocessedanddisseminated;yetthequickertheinformationisreleased,themoreitissubjecttoerror.Thisphenomenonprovidesaninterestingexampleofthetrade-offbetweenrelevanceandreliabilityinpreparingfinancialdata.

∙Inpractice,financialreportingisdoneattheendoftheaccountingperiod.Accountingperiodscanbeanylengthintime.Firmstypicallyusetheyearastheprimaryaccountingperiod.The12-monthaccountingperiodisreferredtoasthefiscalyear.Firmsalsoreportforperiodslessthanayear（e.g.quarterly）onaninterimbasis.

∙Accountingperiodmustbeofequallength.Financialstatementsarepreparedattheendoftheregularaccountingperiodtoallowcomparisonacrosstime.

UserComments

PostedbyJeanette@2003-10-2514:

15:

45.

sameperiod---allowcomparision

basicassumptioninpreparingfinancialstatementsis----thefirmwillcontinueinoperation,---goingconcern,'

assigningrevenue-expenses----baseonmatchingprinciple

PostedbyGiGi@2004-01-2906:

25:

01.

rememberthatthereare4typesoffinancialstatements

b.explainwhytheaccountsmustbeadjustedattheendofeachperiod.

Why?

∙Mostexternaltransactionsarerecordedwhentheyoccur.Theemploymentofanaccrualsystemmeansthatnumerousadjustmentsarenecessarybeforefinancialstatementsarepreparedbecausecertainaccountsarenotaccuratelystated.

∙Someexternaltransactionsmightnotevenseemliketransactionsandarerecognizedonlyattheendoftheaccountingperiod.Examplesincludeunrecordedrevenuesandcreditpurchase.

∙Someeconomicactivitiesdonotoccurastheresultofexternaltransactions.Examplesincludedepreciationandtheexpirationofprepaidexpenses.

∙Timing:

Oftenatransactionaffectstherevenueorexpensesoftwoormoreaccountingperiods.Therelatedcashinfloworoutflowdoesnotalwayscoincidewiththeperiodinwhichtheserevenueorexpenseitemsarerecorded.Thus,theneedforadjustingentriesresultsfromtimingdifferencesbetweenthereceiptordisbursementofcashandtherecordingofrevenueorexpenses.Forexample,ifwehandletransactionsonacashbasis,onlycashtransactionsduringtheyeararerecorded.Consequently,ifacompany'semployeesarepaideverytwoweeksandtheendofanaccountingperiodoccursinthemiddleofthesetwoweeks,neitherliabilitynorexpensehasbeenrecordedforthelastweek.Tobringtheaccountsuptodateforthepreparationoffinancialstatements,boththewageexpenseandthewageliabilityaccountsneedtobeincreased.

Anecessarystepintheaccountingprocess,then,istheadjustmentofallaccountstoanaccrualbasisandtheirsubsequentpostingtothegeneralledger.Adjustingentriesarethereforenecessarytoachieveapropermatchingofrevenuesandexpensesinthedeterminationofnetincomeforthecurrentperiodandtoachieveanaccuratestatementoftheassetsandequitiesexistingattheendoftheperiod.

Adjustmentprinciples

∙Therevenuerecognitionprinciple

∙Thematchingprinciple

Whattoadjust?

Eachadjustingentryaffectsbotharealaccount（assets,liability,orowner'sequity）andanominalorincomestatementaccount（revenueorexpense）.Thefourbasictypesofadjustingentriesare:

1.deferredexpensesthatbenefitsmorethanoneperiod:

forexample,prepaidexpenses（e.g.prepaidinsurance,rent）areexpensespaidinadvanceandrecordedasassetsbeforetheyareusedorconsumed.Whentheseassetsareconsumed,expensesshouldberecognized:

adebittoanexpenseaccountandacredittoanassetaccount.Anotherexampleisdepreciation.Thecostofalong-termassetisallocatedasanexpenseoveritsusefullife.Attheendofeachperioddepreciationexpenseisrecordedthroughanadjustingentry:

adebittoadepreciationexpenseaccountandacredittoanaccumulateddepreciationaccount（acontraaccountusedtototalthepastdepreciationexpensesonspecificlong-termassets）.

2.accruedexpensesthatincurredbutnotyetpaidorrecorded:

examplesareemployeesalariesandinterestonborrowedmoney.Attheendoftheaccountingperiod,theaccruedexpenseisrecordedthroughanadjustingentry:

adebittoanexpenseaccount（i.e.SalariesExpense）andacredittoaliabilityaccount（i.e.SalariesPayable）.

3.accruedrevenuesthatearnedbutnotyetreceivedorrecorded:

alsocalledunrecordedrevenues.Examplesincludeinterestrevenues,rentrevenues,etc.Suchrevenuesaccumulatewiththepassingoftime,butthefirmmayhavenotreceivedthepaymentorbilledtheclient.Anadjustingentryshouldbe:

adebittoanassetaccount（i.e.AccountsReceivable）andacredittoarevenueaccount（i.e.InterestRevenue）.

4.unearnedrevenuesthatarerevenuesreceivedincashbeforedeliveryofgoods/services:

examplesaremagazinesubscriptionfees,customerdepositsforservices.These"revenues"arenotearnedyetandthusshouldberecordedasliabilities.Anadjustingentryshouldbe:

adebittoaliabilityaccount（i.e.UnearnedRevenue）andacredittoarevenueaccount（i.e.Revenue）.

UserComments

PostedbyGiGi@2004-01-2906:

26:

22.

accrualsystem!

!

!

definition

PostedbyGina@2004-02-0322:

17:

33.

accrualbasedaccountingrecognizestheimpactofabusinesseventasitoccurs,regardlessofwhethertransactionaffectedcash

PostedbyGina@2004-02-0322:

20:

20.

RevenuePrinciple:

basisforrecordingrevenues（ietellswhentorecordrevenueandtheamounts）.

MatchingPrinciple:

basisforrecordingexpensis（iedirectiontoIDallexpensesduringtheperiod,measurethem,andmatchthemagainsttherevenuesearnedinthatperiod）.

c.explainwhytheaccrualbasisofaccountingproducesmoreusefulincomestatementsandbalancesheetsthanthecashbasis.

Revenueissomethingearnedthroughthesaleofgoodsorservices.Notallcashreceiptsarerevenues;forexample,cashreceivedthroughaloanisnotrevenue.Expensesarethecostofgoodsorservicesusedtogeneraterevenues.Notallcashpaymentsareexpenses;forexample,cashdividendspaidtostockholdersarenotexpenses.Netincomeisthedifferencebetweenrevenuesandexpenses.Itisreportedontheincomestatement,andisthefocusinevaluatingafirm'sprofitability.

Mostcompaniesusetheaccrualbasisaccounting,recognizingrevenuewhenitisearned（thegoodsaresoldortheservicesperformed）andrecognizingexpensesintheperiodincurred,withoutregardtothetimeofreceiptorpaymentofcash.Netincomeisrevenueearnedminusexpensesincurred.

Underthestrictcashbasisaccounting,revenueisrecordedonlywhenthecashisreceivedandexpensesarerecordedonlywhenthecashispaid.Netincomeiscashrevenueminuscashexpenses.Thematchingprincipleisignoredhere,resultinginconformitywithgenerallyacceptedaccountingprinciples.

Today'seconomyisconsiderablymorelubricatedbycreditthanbycash.Andtheaccrualbasis,notthecashbasis,recognizesallaspectsofthecreditphenomenon.Investors,creditors,andotherdecisionmakersseektimelyinformationaboutanenterprise'sfuturecashflows.Accrualbasisaccountingprovidesthisinformationbyreportingthecashinflowsandoutflowsassociatedwithearningsactivitiesassoonasthesecashflowscanbeestimatedwithanacceptabledegreeofcertainty.Receivablesandpayablesareforecastersoffuturecashinflowsandoutflows.Inotherwords,accrualbasisaccountingaidsinpredictingfuturecashflowsbyreportingtransactionsandothereventswithcashconsequencesatthetimethetransactionsandeventsoccur,ratherthanwhenthecashisreceivedandpaid.Accrualaccountinggenerallyprovidesabetterindicationofperformancethancashbasisofaccountingsinceitincreasesthecomparabilityofincomestatementsandbalancesheetsacrossperiods.

B.FinancialReportingandAnalysis

a.defineeachassetandliabilitycategoryonthebalancesheetandprepareaclassifiedbalancesheet.

Thinkofthebalancesheetasaphotoofthebusinessata