Corporate Finance
Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
Question
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Chapter 2, Problem 1P
Summary Introduction

To discuss: The four financial statements.

Introduction:

Financial statements record the financial activities and financial positions of the business.

Expert Solution & Answer
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Answer to Problem 1P

The financial statements of a company are classified into four types:

  1. 1. Balance sheet
  2. 2. Income statement
  3. 3. Statement of cash flows
  4. 4. Statement of stock holder’s equity

Explanation of Solution

Balance sheet shows the detailed information about a company’s assets, liabilities and shareholders’ equity.

Income statement is the report of a company’s expenses, income, profits for a particular period.

Statement of cash flows deals with a company’s cash flow activities in the areas of operating activities, investing activities and financial activities.

The document, which is issued by the company as a part of balance sheet is termed as the statement of stockholders’ equity. It indicates the changes in the shareholders equity

Instructions to be followed to maintain the accuracy of the above statements:

  • All the companies should follow a particular format of rules and regulations while preparing the reports.
  • A private party such as an auditor have to be appointed to check the accuracy of the financial statement.
  • The statements must be in accordance with GAAP (generally accepted accounting principle).
  • In addition to the role of auditors, The SO act needs CEO and CFO to attest the accuracy of a statement and to sign it.
Conclusion

Thus, the financial statement reveals the financial position with the help of the above-mentioned statements.

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Corporate Finance

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