Chapter 7

Financial Statements and Accounting Standards

In This Chapter

arrow Fleshing out the three key financial statements

arrow Noting the difference between profit and cash flow

arrow Finding answers in the financial statements

arrow Knowing the nature of accounting standards

This chapter presents a brief introduction to the three primary business financial statements: the income statement, the balance sheet, and the statement of cash flows. In this chapter, you get more interesting tidbits about these three financials, as they’re sometimes called. Then, in Book II Chapters 4–6, you really get the goods. Remember when you were learning to ride a bicycle? This chapter is like getting on the bike and learning to keep your balance. In this chapter, you put on your training wheels and start riding. Then, when you’re ready, the really meaty upcoming chapters just mentioned explain all 21 gears of the financial statements bicycle, and then some.

This chapter explains that net income — which is the bottom-line profit of a business reported in its income statement — does not produce cash flow of the same amount. ...

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