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Wiley GAAP 2008 by Colorado Steven M. Bragg Englewood, Ralph Nach American Express Tax and Business Inc., Barry J. Epstein

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Perspective and Issues

Balance sheets (also known as statements of financial position) present information about assets, liabilities, and owners' equity (depending on the type of reporting enterprise, this is referred to as shareholders' equity, net assets, members' equity, or partners' capital) and their relationships to each other. They reflect an enterprise's resources (assets) and its financing structure (liabilities and equity) in conformity with generally accepted accounting principles. The balance sheet reports the aggregate effect of transactions at a point in time, whereas the statements of income, retained earnings, comprehensive income, and cash flows all report the effect of transactions occurring during a specified period of time such as a month, quarter, or year.

For years, users of financial statements put more emphasis on the income statement than on the balance sheet. Investors' main concern was the short‐run maximization of earnings per share. During the late 1960s and early 1970s, the future prospects of business enterprises were largely judged based on measures of earnings growth. But the combination of inflation and recession during the 1970s and the emphasis in FASB's Conceptual Framework Project on the asset‐liability approach to accounting theory brought about a rediscovery of the balance sheet. This shift toward emphasis on the balance sheet has marked a departure from the traditional transaction‐based concept of income toward a capital maintenance concept ...

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