• Who or what is the financial report about?
• Entity the business separated from the
personal lives of owners, managers, and
Conflicts of Interest, Ethics
Who needs to know?
• Government [?]
What is the purpose of the
Earning income with and taking care of the
estate of others
Liquidity--pay the bills
Solvency--sufficient owners' equity
– The report is the report of management,
not the accountants, the auditors, or the
– Management's responsibility to disclose
everything ". . .such as to not make the
statements misleading.", complete without
NOT. . .I met X and he was sober this time.
Objectivity: Not subject to bias.
Conservatism: Record Losses, defer
Going Concern: Company continues
Consistency: Use same methods from
year to year.
Materiality: Only and all important
disclosures are made
Accounting Identity: A=L+OE
Everything we have came from somewhere.
Where did our investment come from?
Investment = Sources
Assets = Borrowings + Owners Invested + Earned
Assets = Liabilities + Stock sold + Earnings [Ret.]
Earnings = Revenues – Expenses
Debits = Credits