The organization
of financial data into useful formats called financial statements
is the standardized means of analyzing and presenting information
regarding the operation and/or the different perspectives of the
financial status of a business entity.
The Financial Accounting
Standards Board (FASB) is responsible for defining the form and
content of each type of financial statement; its oversight duties
further extend into defining the use and reporting standards for
these statements.
The Securities and
Exchange Commission (SEC), the American Accounting Association (AAA),
the American Institute of Certified Public Accountants (AICPA),
and other parties all actively participate in the process of developing
new standards for the accounting statements defined by FASB.
Recent reports
of corporations and their independent auditing firms (i.e., Enron,
WorldCom, GlobalCrossings, and Arthur Andersen LLP) misrepresenting
income or other aspects of the financial status of the venture will
be the cause for new, more strict standards to be adopted by FASB.
This will not impact the information presented in this section since
the new standards will be aimed at improving the integrity of the
financial reporting systems and not the form or content of the basic
financial statements presented here. However, these events dramatically
underscore the need for strong, accurate accounting systems whether
it serves the independent operator of a small business or multi-national
corporation.
This section
will introduce you to financial statements through simple and basic
examples. The two most fundamental financial statements, the Income
Statement and the Balance Sheet, will be presented in the following
sections along with a template for use in projecting the cash needs
of a business.
