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1、A. Measuri ng Busin ess In come a. explain why financial statements are prepared at the end of the regular acco un ti ng period.Major Finan cial Stateme nts:* The bala nee sheet: provides a sn apshot of the firms finan cial con diti on.* The in come stateme nt: reports on the performa nee of the fir
2、m.* The stateme nt of cash flows: reports the cash receipts and cash outflows classified according to operating, investment and financing activities.* The stateme nt of stockholders equity: reports the amounts and sources of cha nges in equity from tran sacti ons with own ers.* The foot no tes of th
3、e finan cial stateme nts: allow uses to improve assessment of the amount, timing and uncertainty of the estimates reported in the finan cial stateme nts.The most accurate way to measure the results of en terprise activity would be to measure them at the time of the en terprises eve ntual liquidati o
4、n. Busin ess, government, investors, and various other user groups, however, cannot wait indefinitely for such information.If accountantsdid not provide financialin formatio n periodically, some one else would.The periodicity or time period assumption simply implies that the economic activities of a
5、n en terprise can be divided in to artificial time periods. These time periods vary, but the most com mon are mon thly, quarterly, and yearly.The in formatio n must be reliable and releva nt. This requires that in formatio n must be consistent and comparable over time and also be provided on a timel
6、y basis. The shorter the time period, the more difficult it becomes to determine the proper net in come for the period. A mon ths results are usually less reliable tha n a quarters results, and a quarters results are likely to be less reliable than a years results. Inv estors desire and dema nd that
7、 in formati on be quickly processed and disseminated; yet the quicker the information is released, the more it is subject to error. This phenomenon provides an interesting example of the trade-off betwee n releva nee and reliability in prepari ng finan cial data.* In practice, finan cial report ing
8、is done at the end of the acco unting period.Acco unting periods can be any len gth in time. Firms typically use the yearas the primary accounting period. The 12-month accounting period is referred to as the fiscal year. Firms also report for periods less than a year (e.g. quarterly) on an in terim
9、basis.精品资料 Accounting period must be of equal length. Financial statements are prepared at the end of the regular acco un ti ng period to allow comparis on across time.User Comme ntsPosted by Jea nette 2003-10-25 14:15:45.same period - allow comparisi onbasic assumption in preparing financial statem
10、ents is - the firm will continue in operati on，going concern,assig ning reve nue - expe nses - base on matchi ng prin ciplePosted by GiGi 2004-01-29 06:25:01.remember that there are 4 types of finan cial stateme nts b. expla in why the acco unts must be adjusted at the end of each period.Why?* Most
11、exter nal tran sact ions are recorded whe n they occur. The employme nt of an accrual system means that nu merous adjustme nts are necessary before financial statements are prepared because certain acco unts are not accurately stated. Some exter nal tran sacti ons might not eve n seem like tran sact
12、 ions and are recog ni zed only at the end of the acco unting period. Examples in elude un recorded reve nues and credit purchase.* Some economic activities do not occur as the result of external tran sacti ons. Examples in clude depreciati on and the expirati on of prepaid expe nses.* Timing: Often
13、 a transaction affects the revenue or expenses of two or more acco unting periods. The related cash in flow or outflow does not always coin cide with the period in which these reve nue or expe nse itemsare recorded. Thus, the need for adjusting entries results from timing differe nces betwee n the r
14、eceipt or disburseme nt of cash and the record ing of reve nue or expe nses. For example, if we han dle tran sacti ons on a cash basis, only cash tran sacti ons duri ng the year are recorded. Con seque ntly, if a companys employees are paid every two weeks and the end of an accounting period occurs
15、in the middle of these two weeks, neither liability nor expe nse has bee n recorded for the last week. To bring the acco unts up to date for the preparation of financial statements, both the wage expe nse and the wage liability acco unts n eed to be in creased.A necessary step in the accounting proc
16、ess, then, is the adjustment of all accounts to an accrual basis and their subsequent posting to the general ledger.Adjusting entries are therefore necessary to achieve a proper matching of reve nues and expe nses in the determ in ati on of net in come for the curre nt period and to achieve an accurate stateme nt of the assets and equities exist ing at the end of the period.Adjustme nt prin ciples* T
