Introduction

Accounting is known as the language of business because it communicates financial and economic facts about a business to all sorts of interested parties — both internal (employees of the company) and external (people not employed by the company in question). External users include investors, creditors, banks, and regulatory agencies such as the Internal Revenue Service and the U.S. Securities and Exchange Commission.

Zeroing in on the external users of accounting information, this book is about financial accounting. Financial accounting serves the needs of external users by providing them with understandable, materially correct financial statements. There are three financial statements: the income statement, balance sheet, and statement of cash flows. This book is a step-by-step guide on how to prepare all three.

You also find out the purposes of the financial statements:

check.png To report on the financial position of the company — what types of assets the company owns and what types of liabilities it owes.

check.png To show how well the company performs over a period of time, which is referred to as an accounting period. You measure performance by seeing whether the company made or lost money during the accounting period.

A lot of first-time accounting students tell me that they are ...

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