There are different types of business organization which include: sole proprietorship, partnership and corporation. Accounting is the identification, recording, and communication of the day to day events of an organization to concerned users. These users fall into two groups: internal and external users. Internal users are planners, organizers, and those in charge of running an organization. Investors, suppliers, licensing firms, creditors, customers, and labor unions make up the external users. (Kimmel, Weygandt, & Kieso, 2018, p. 5&6)
There are three principal types of business activity: financing, investing and operating. “Accounting information is organized in four different financial statements which are: income statements, retained earnings statements, balance sheets, and a statement of cash flows.” (Kimmel, Weygandt, & Kieso, 2018, p. 11, 12 & 13). This chapter discusses in detail how these statements are prepared and the interrelationships among them.
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The second chapter involves an in-depth study of a classified balance sheet used by most companies. “Under the assets column, it has sections like current assets, long-term investments, property, plant, and equipment and intangible assets. Under the liabilities and stockholders’ equity column are current liabilities, non-current liabilities and stockholders’ equity.” (Kimmel, Weygandt, & Kieso, 2018, p 46-50). Analysis of financial statements require tools like ratio analysis to evaluate a company’s profitability, liquidity, and solvency.
Statement of cash flow determines the profit-generating capability of the organization. In the final section of the chapter, various concepts used in financial reporting have been discussed. The different accounting principles like the measurement principles and the full disclosure principle have also been highlighted. (Kimmel, et al, 2018, p. 61 & 62)
References
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2018). Accounting: Tools for business decision making .