Introduction

Accounting is an information system that identifies records and communicates the economic events of an organization to interested parties. Accounting is defined by the American Institute of Certified Public Accountants (AICPA) as "the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof." Accounting is thousands of years old; the earliest accounting records, which date back more than 7,000 years, were found in Mesopotamia (Assyrians). The people of that time relied on primitive accounting methods to record the growth of crops and herds. Accounting evolved, improving over the years and advancing as business advanced. Early accounts served mainly to assist the memory of the businessperson and the audience for the account was the proprietor or record keeper alone. Cruder forms of accounting were inadequate for the problems created by a business entity involving multiple investors, so double-entry bookkeeping first emerged in northern Italy in the 14th century, where trading ventures began to require more capital than a single individual was able to invest. The development of joint stock companies created wider audiences for accounts, as investors without firsthand knowledge of their operations relied on accounts to provide the requisite information. This development resulted in a split of accounting systems for internal (i.e. management accounting) and external (i.e. financial accounting) purposes, and subsequently also in accounting and disclosure regulations and a growing need for independent attestation of external accounts by auditors.

He assigned us the report on ‘Financial Statement. Abu Taleb. As a result we get the authentic data and try to show the inner part of Financial Statement. . To identify financial statements consist of how many ways. Department of Banking. Specific Objectives: • • • • To know how financial statement contribute in business decision making. its use and application’. Our objectives of preparing this term paper are: General Objective: • To learn how financial statement works in business. So. gave us the opportunity to produce this report. University of Dhaka. What is the use of financial statement.Origin of the Report We are lucky to say that our honorable course teacher Md. identifying objectives is very much important. A clear objective help in preparation of well decorate report in which others take right type of decisions. To learn other concept about its forming procedure. The report prepared on the basis of the secondary data. Scope of the Report The report focuses on Financial Statement. Assistant Professor.So we hardly tried to show our passion in order to prepare this report Objective of the Report As a business executive of the future. its use and application. we should have to gather more experience beside our study. We should not concentrate our lessons only in class room but to implement it in practical life that will help us in our professional life.

I also used internet and collected some e-books. . Management accounting is concerned primarily with providing a basis for making management or operating decisions. Accounting that provides information to people outside the business entity is called financial accounting and provides information to present and potential shareholders.Limitations of the Report Hardly any report overcomes all the limitations getting complete accuracy. The limitations of the report are: • • • • • Vast scope and descriptive nature of study. managers. Accounting Today. Procedure of Gathering Data Collection of data is an important part of a report preparing. This one is also not exceptional. For This Purpose I studied some reference book. moreover I also collected information from various journals. The web-sites were not informative enough for the topic from where we could get authentic information. Accounting that concentrates on reporting to people inside the business entity is called management accounting and is used to provide information to employees. owner-managers and auditors. These types of report need a huge amount of time. If the study covers more interviewers and information the results and conclusions of the study might be more meaningful and useful. accounting is called "the language of business" because it is the vehicle for reporting financial information about a business entity to many different groups of people. This study is based upon the conversation with some related people and secondary data which is not adequate. Previous research papers related this type of report is not that much available. Besides. But we did not use that much time.

or US GAAP. accompanied by a management discussion and analysis.creditors such as banks or vendors. presented in a structured manner and in a form easy to understand. the presentation of financial accounts is very structured and subject to many more rules than management accounting. Financial statement A financial statement (or financial report) is a formal record of the financial activities of a business. A Profit & Loss statement provides information on the operation of the enterprise. Notes to financial statements are considered an integral part of the financial statements. economists. Because these users have different needs. . or other entity. particularly by accountants. They typically include four basic financial statements. financial analysts. and profits over a period of time. Statement of Changes in Equity: Explains the changes of the company's equity throughout the reporting period Statement of cash flows: Reports on a company's cash flow activities. particularly its operating. liabilities. or GAAP. investing and financing activities. are called the financial statements. The body of rules that governs financial accounting in a given jurisdiction is called Generally Accepted Accounting Principles. or IFRS. these statements are often complex and may include an extensive set of notes to the financial statements and management discussion and analysis. Statement of Financial Position: Also referred to as a balance sheet. These include sale and the various expenses incurred during the processing state. reports on a company's assets. person. The notes typically describe each item on the balance sheet. income statement and cash flow statement in further detail. In British English—including United Kingdom company law—a financial statement is often referred to as an account. and government agencies. although the term financial statement is also used. reports on a company's income. and ownership equity at a given point in time. Statement of Comprehensive Income: Also referred to as Profit and Loss statement (or a "P&L"). For a business enterprise. all the relevant financial information. expenses. For large corporations. Other rules include International Financial Reporting Standards.

in the case of labor unions or for individuals in discussing their compensation. promotion and rankings. or cash accounting. or a combination of the two (OCBOA). liabilities. Vendors who extend credit to a business require financial statements to assess the creditworthiness of the business. These statements are also used as part of management's annual report to the stockholders. Government financial statement The rules for the recording. relevant. Government entities (tax authorities) need financial statements to ascertain the propriety and accuracy of taxes and other duties declared and paid by a company. Reported assets. performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions. They may use either of two accounting methods: accrual accounting. Financial statements are intended to be understandable by readers who have "a reasonable knowledge of business and economic activities and accounting and who are willing to study the information diligently.Purpose of financial statements by business entities "The objective of financial statements is to provide information about the financial position." Financial statements should be understandable. reliable and comparable. equity." Financial statements may be used by users for different purposes: Owners and managers require financial statements to make important business decisions that affect its continued operations. measurement and presentation of government financial statements may be different from those required for business and even for non-profit organizations. Financial analysis is then performed on these statements to provide management with a more detailed understanding of the figures. income and expenses are directly related to an organization's financial position. Prospective investors make use of financial statements to assess the viability of investing in a business. A complete set of chart of accounts is also used that is substantially different from the chart of a profit-oriented business . Financial analyses are often used by investors and are prepared by professionals (financial analysts). Financial institutions (banks and other lending companies) use them to decide whether to grant a company with fresh working capital or extend debt securities (such as a long-term bank loan or debentures) to finance expansion and other significant expenditures. thus providing them with the basis for making investment decisions. Media and the general public are also interested in financial statements for a variety of reasons. Employees also need these reports in making collective bargaining agreements (CBA) with the management.

Typically. These are usually performed by independent accountants or auditing firms. In Canada. temporarily Restricted (to be released after the donor's time or purpose restrictions have been met). But this may not be the case as determined by common law precedent. financing. it is commonly thought that they owe a legal duty of care to them. There has been much legal debate over who an auditor is liable to. and tax purposes. a personal financial statement consists of a single form for reporting personally held assets and liabilities (debts). auditors have unlimited liability. In the United Kingdom. for example. auditors are liable only to investors using a prospectus to buy shares in the primary market. The form to be filled out is determined by the organization supplying the loan or aid. and Permanently Restricted (to be held perpetually. Personal financial statements Personal financial statements may be required from persons applying for a personal loan or financial aid. e. Audit and legal implications Although laws differ from country to country. The audit opinion on the financial statements is usually included in the annual report. Charitable organizations in the United States are required to show their income and net assets (equity) in three categories: Unrestricted (available for general use)..Financial statements of non-profit organizations The financial statements that non-profit organizations such as charitable organizations and large voluntary associations publish tend to be simpler than those of for-profit corporations. or both.g. discouraging anyone other than the addressees of their report from relying on it. an audit of the financial statements of a public company is usually required for investment. in an Endowment). they have been held liable to potential investors when the auditor was aware of the potential investor and how they would use the information in the financial statements. . Results of the audit are summarized in an audit report that either provides an unqualified opinion on the financial statements or qualifications as to its fairness and accuracy. Nowadays auditors tend to include in their report liability restricting language. Since audit reports tend to be addressed to the current shareholders. Often they consist of just a balance sheet and a "statement of activities" (listing income and expenses) similar to the "Profit and Loss statement" of a for-profit. Liability is an important issue: in the UK. or personal sources of income and expenses.

Corporate officers (the chief executive officer (CEO) and chief financial officer (CFO)) are personally liable for attesting that financial statements "do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made. a set of guidelines and rules are used. To ensure uniformity and comparability between financial statements prepared by different companies. For example Bernie Ebbers (former CEO of WorldCom) was sentenced to 25 years in federal prison for allowing WorldCom's revenues to be overstated by $11 billion over five years. especially in the post-Enron era there has been substantial concern about the accuracy of financial statements." Making or certifying misleading financial statements exposes the people involved to substantial civil and criminal liability. not misleading with respect to the period covered by the report.In the United States. are under consideration in South Africa and other countries. these set of guidelines provide the basis in the preparation of financial statements. making international comparisons of companies difficult. . Inclusion in annual reports To entice new investors. Usually the company's chief executive will write a letter to shareholders. GAAP and IFRS over time. The United States Financial Accounting Standards Board has made a commitment to converge the U.S. Canada and the European Union (for publicly quoted companies only). Standards and regulations Different countries have developed their own accounting principles over time. in light of the circumstances under which such statements were made. Recently there has been a push towards standardizing accounting rules made by the International Accounting Standards Board ("IASB"). IASB develops International Financial Reporting Standards that have been adopted by Australia. describing management's performance and the company's financial highlights. attempting to capture the excitement and culture of the organization in a "marketing brochure" of sorts. Commonly referred to as Generally Accepted Accounting Principles (GAAP). most public companies assemble their financial statements on fine paper with pleasing graphics and photos in an annual report to shareholders.

these businesses owe money to suppliers and to tax authorities. Of the four basic financial statements. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company and according to the accounting equation. equity and liabilities at a specific point in time. and these are presented in the organization's annual report. liabilities and ownership equity. A balance sheet is often presented alongside one for a different point in time (typically the previous year) for comparison. the balance sheet is the only statement which applies to a single point in time of a business' calendar year.Balance sheet In financial accounting. Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the owner's money (owner's equity). Often. immediately turn these into cash at the end of each period. they build up inventories of goods and they acquire buildings and equipment. net worth must equal assets minus liabilities. many businesses are not paid immediately. Balance sheets are usually presented with assets in one section and liabilities and net worth in the other section with the two sections "balancing. Individuals and small businesses tend to have simple balance sheets. Assets are followed by the liabilities. plus any cash in hand. Another way to look at the same equation is that assets equal liabilities plus owner's equity. Larger businesses tend to have more complex balance sheets. even if they want to. Types A balance sheet summarizes an organization or individual's assets. In other words: businesses have assets and so they can not. A balance sheet is often described as a "snapshot of a company's financial condition". . A standard company balance sheet has three parts: assets. However. a business partnership or a company. liabilities and ownership equity are listed as of a specific date. and the proprietors do not withdraw all their original capital and profits at the end of each period. Large businesses also may prepare balance sheets for segments of their businesses. In other words businesses also have liabilities. The main categories of assets are usually listed first and typically in order of liquidity. a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship. such as the end of its financial year." A business operating entirely in cash can measure its profits by withdrawing the entire bank balance at the end of the period. Assets.

200 Notes Payable $30.000 Owners' equity Capital Stock $7.000 Tools and equipment $25. Securities and real estate values are listed at market value rather than at historical cost or cost basis. intangible assets such as patents.600 Liabilities Accounts Receivable $6. accrued expenses.Personal balance sheet A personal balance sheet lists current assets such as cash in checking accounts and savings accounts. Balance sheet account names and usage depend on the organization's country and the type of organization.800 A really small business balance sheet lists current assets such as cash. and liabilities such as accounts payable. fixed assets such as land. . US small business balance sheet: Sample Small Business Balance Sheet Liabilities and Owners' Equity Assets Cash $6.800 Total $37. Government organizations do not generally follow standards established for individuals or businesses. Personal net worth is the difference between an individual's total assets and total liabilities. Contingent liabilities such as warranties are noted in the footnotes to the balance sheet.800 Total $37. current liabilities such as loan debt and mortgage debt due. long-term assets such as common stock and real estate.000 Accounts Payable Total liabilities $30. The small business's equity is the difference between total assets and total liabilities. and inventory. Public Business Entities balance sheet structure Guidelines for balance sheets of public business entities are given by the International Accounting Standards Committee (now International Accounting Standards Board) and numerous country-specific organizations/companies. accounts receivable. long-term liabilities such as mortgage and other loan debt. and equipment. buildings.000 Retained Earnings $800 Total owners' equity $7. or overdue. and long-term debt.

Assets are all the things the business own. cars. Liabilities: • • • • • • • • • Accounts payable Provisions for warranties or court decisions Financial liabilities (excluding provisions and accounts payable). etc. shareholders' equity is part of the company's liabilities: they are funds "owing" to shareholders (after payment of all other liabilities). and are a residual. summary values for the following items should be included in the balance sheet. issued and fully paid. shareholders' equity by construction must equal assets minus liabilities. which are living plants or animals. such as real estate held for investment purposes • Intangible assets • Financial assets (excluding investments accounted for using the equity method. such as apple trees grown to produce apples and sheep raised to produce wool. and cash and cash equivalents) • Investments accounted for using the equity method • Biological assets. this will include property tools. and issued but not fully paid Par value of shares Reconciliation of shares outstanding at the beginning and the end of the period . plant and equipment • Investment property. Regarding the items in equity section. Bearer biological assets are plants or animals which bear agricultural produce for harvest. which is known as the shareholders' equity. In this sense. It comprises: Issued capital and reserves attributable to equity holders of the parent company (controlling interest) Non-controlling interest in equity Equity: Formally. accounts receivables. "liabilities" is used in the more restrictive sense of liabilities excluding shareholders' equity. the following disclosures are required: Numbers of shares authorized. Records of the values of each account in the balance sheet are maintained using a system of accounting known as double-entry bookkeeping. usually. The balance of assets and liabilities (including shareholders' equity) is not a coincidence.If applicable to the business. such as promissory notes and corporate bonds Liabilities and assets for current tax Deferred tax liabilities and deferred tax assets Unearned revenue for services paid for by customers but not yet provided The net assets shown by the balance sheet equals the third part of the balance sheet. Assets: Current assets • Cash and cash equivalents • Inventories • Accounts receivable • Prepaid expenses for future services that will be used within a year Non-current assets (Fixed assets) • Property. however.

a cash flow statement. investing. the cash flow statement is concerned with the flow of cash in and cash out of the business. and any other items charged or credited to retained earnings. issue or redemption of stock. preferences. The statement captures both the current operating results and the accompanying changes in the balance sheet. Line items typically include profits or losses from operations. They break down changes in the owners' interest in the organization. and Statement of Retained Earnings and Stockholders' Equity for corporation) are basic financial statements. who want a clear picture of a company's ability to repay Potential investors. who need to judge whether the company is financially sound . where: Owners' Equity = Assets − Liabilities Cash flow statement In financial accounting. The statements explain the changes in a company's retained earnings over the reporting period. also known as statement of cash flows or funds flow statement. particularly its ability to pay bills. Essentially. and in the application of retained profit or surplus from one accounting period to the next. is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents. and restrictions of shares Treasury shares. Statement of Partner's Equity for partnership. is the International Accounting Standard that deals with cash flow statements. dividends paid. People and groups interested in cash flow statements include: Accounting personnel. the statement of cash flows is useful in determining the short-term viability of a company. and financing activities. including shares held by subsidiaries and associates Shares reserved for issuance under options and contracts A description of the nature and purpose of each reserve within owners' equity Statement of retained earnings The Statement of Retained Earnings (and similarly the Equity Statement. The statements are expected by Generally Accepted Accounting Principles and explain the owners' equity and retained earnings shown on the balance sheet.Description of rights. International Accounting Standard 7 (IAS 7). Statement of Owner's Equity for a single proprietorship. and breaks the analysis down to operating. who need to know whether the organization will be able to cover payroll and other immediate expenses Potential lenders or creditors. As an analytical tool.

if there is conflict between accounting and market data. liabilities and equity Improve the comparability of different firms' operating performance by eliminating the effects of different accounting methods Indicate the amount. market data should be given precedence. such as various timeframes for depreciating fixed assets. and the income statement summarizes a firm's financial transactions over an interval of time. Financial statement analysis is essentially an application of “management by exception. how to get benchmark information. In particular. Using Financial Statement Information Here we will discuss in more detail some practical aspects of financial statement analysis. The balance sheet is a snapshot of a firm's financial resources and obligations at a single point in time. it excludes transactions that do not directly affect cash receipts and payments. Why Evaluate Financial Statement As we have discussed. The cash flow statement is a cash basis report on three types of financial activities: operating activities. Provide information on a firm's liquidity and solvency and its ability to change cash flows in future circumstances Provide additional information for evaluating changes in assets. These non-cash transactions include depreciation or write-offs on bad debts or credit losses to name a few. The cash flow statement was previously known as the flow of Cash statement.” In many cases. timing and probability of future cash flows The cash flow statement has been adopted as a standard financial statement because it eliminates allocations. investing activities. We stress that whenever we have market information. we will look at reasons for analyzing financial statements. and some problems that come up in the process.Potential employees or contractors. which might be derived from different accounting methods. Also. market value information. The cash flow statement reflects a firm's liquidity. and financing activities. The cash flow statement is intended to. and can’t reasonably expect to get. Non-cash activities are usually reported in footnotes. These two financial statements reflect the accrual basis accounting used by firms to match revenues with the expenses associated with generating those revenues. The cash flow statement includes only inflows and outflows of cash and cash equivalents. . the primary reason for looking at accounting information is that we don’t have. who need to know whether the company will be able to afford compensation and Shareholders of the business. Those ratios that seem to differ the most from the averages are tagged for further study. such analysis will boil down to comparing ratios for one business with average or representative ratios. we will use it instead of accounting data.

For example. We might be thinking of launching a new product. Credit-rating agencies rely on financial statements in assessing a firm’s overall creditworthiness. As we will see.Internal Uses: Financial statement information has a variety of uses within a firm. we might be thinking of acquiring another firm. Choosing a Benchmark Given that we want to evaluate a division or a firm based on its financial statements. Another important internal use we will explore in the next chapter is planning for the future. In this case. Finally. firms with multiple divisions frequently compare the performance of those divisions using financial statement information. we would find such information quite useful in deciding whether to grant credit to a new customer. or a standard of comparison? We describe some ways of getting started in this section. we would be interested in learning about our competitors’ financial strength to see if they could afford the necessary development. We would also find such information useful in evaluating our main competitors. manager’s are frequently evaluated and compensated on the basis of accounting measures of performance such as profit t margin and return on equity. We would also use this information to evaluate suppliers. and suppliers would review our statements before deciding to extend credit to us. The common theme here is that financial statements are a prime source of information about a firm’s financial health. historical financial statement information is useful for generating projections about the future and for checking the realism of assumptions made in those projections. Also. For example. a basic problem immediately comes up. A prime concern would be whether the competition would jump in shortly thereafter. Among the most important of these is performance evaluation. How do we choose a benchmark. Large customers use this information to decide if we are likely to be around in the future. including short-term and longterm creditors and potential investors. External Uses: Financial statements are useful to parties outside the firm. financial statement information would be essential in identifying potential targets and deciding what to offer. .

we may be more concerned with a group of the top firms in an industry. it is probably not appropriate to blindly use SIC code–based averages. of course. The first digit in a SIC code establishes the general type of business. There are obvious problems with doing this because no two companies are identical. have similar assets. companies with SIC codes beginning with 60are mostly banks and bank like businesses. you would find about 20 large. government for statistical reporting. It could be. Firms with the same SIC code is frequently assumed to be similar. not the average fi rm. Suppose we are in the retail hardware business.4 based on the most recent financial statement information. In a quick scan of the nearest financial database. we need to identify a peer group. In this case. publicly owned corporations with this same SIC code. however.10 lists selected two-digit codes (the first two digits of the four-digit SIC codes) and the industries they represent. but it does merit investigation. that the firm has made changes that allow it to more efficiently use its current assets. Beginning in 1997. we might find that this ratio had declined fairly steadily over that period Based on this. Also. Ultimately the choice of which companies to use as a basis for comparison is subjective. Each additional digit narrows down the industry. but you might not be comfortable with some of them. firms engaged in finance. but Neiman-Marcus also carries the same industry code. In other words. a new industry classification system was initiated. Peer Group Analysis: The second means of establishing a benchmark is to identify firms similar in the sense that they compete in the same markets. and operate in similar ways. One common way of identifying potential peers is based on Standard Industrial Classification (SIC) codes. SIC codes are far from perfect. and real estate have SIC codes beginning with 6. SIC codes are still widely used.11 contains some .Time Trend Analysis: One standard we could use is history. Instead. The relevant SIC code is 5310. Table 3. For example. we can now take a look at a specific industry. Are Wal-Mart and Neiman-Marcus really comparable? As this example illustrates. the nature of the firm’s business has changed. For example. insurance. pronounced “nakes”) is intended to replace the older SIC codes. This is an example of what we mean by management by exception—a deteriorating time trend may not be bad. So. Such a group is called an aspirant group because we aspire to be like its members. Department Stores. suppose you were examining financial statements for Wal-Mart. Currently. a financial statement analysis reveal show far we have to go. and it will eventually.S. If we investigate. the North American Industry Classification System (NAICS. Suppose we found that the current ratio for a particular firm is 2. Looking back over the last 10 years. These are four-digit codes established by the U. analysts often identify a set of primary competitors and then compute asset of averages based on just this group. those with codes beginning with 602 are mostly commercial banks. the largest retailer in the United States. With these caveats about SIC codes in mind. we might wonder if the liquidity position of the firm has deteriorated. Target would seem to be a reasonable peer. or business practices have changed. and SIC code 6025 is assigned to national banks that are members of the Federal Reserve system. Specifically. we might find any of these possible explanations behind the decline. Table 3.

More generally. There is a large amount of information here. we have three years’ worth of summary historical information for the entire group. is this value unusual? Looking at the current ratio for the overall group for the most recent year (third column from the left in Table 3. Another problem that is becoming increasingly common is that major competitors and natural peer group members in an industry may be scattered around the globe. For example. is the median. The one in the middle. owning more or less unrelated lines of business. Sears has hadean SIC code of 6710 (Holding Offices) because of its diverse financial and retailing operations.11. As we discuss in other chapters. one of many sources of such information. again reported by sales groups on the right and time period on the left. and there is only one way of operating. Little such help exists with financial statements. we see that three numbers are reported. The automobile industry is an obvious example. I rams with sales in the $10 million to $25 million range have cash and equivalents equal to7. On the left.12 contains some selected ratios.12 contains selected ratios from the same source. On the right in Table 3.4. we have current information reported for different groups based on sales.7 and 25 percent had a current ratio smaller than 1. meaning that half of the 345 firms had current ratios that were lower and half had bigger current ratios.5. . and operating profit rose from 2. there are many cases in which financial theory and economic logic provide guidance in making judgments about value and risk. common-size information is reported. most of which is self-explanatory. 25 percent of the firms had a current ratio larger than 3. suppose our firm has a current ratio of 2. Problems with financial statement analysis We close our chapter on financial statements by discussing some additional problems that can arise in using financial statements. To see how we might use this information. so it doesn’t appear too unusual. the kind of peer group analysis we have been describing works best when the firms are strictly in the same line of business. One particularly severe problem is that many firms are conglomerates.12). for example. This comparison illustrates how knowledge of the range of ratios is important in addition to knowledge of the average. The consolidated financial statements for such firms don’t any neat industry category. the basic problem with financial statement analysis is that there is no underlying theory to help us identify which quantities to look at and to guide us in establishing benchmarks.1 percent of total assets. There are 33 companies in this group. Table 3. Our value of 2 falls comfortably within these bounds. Notice how stable the current ratio has been forthe last three years.2 percent of sales to 2. For example. So. the industry is competitive. formerly known as Robert Morris Associates). The other two numbers are the upper and lower quartiles. out of 345 in all. In one way or another. Within each sales group. 2. This is why we can’t say which ratios matter the most and what a high or low value might be. The problem here is that financial statements from outside the United States do not necessarily conform at all to GAAP.condensed common-size financial statements for this industry from the Risk Management Association (RMA.3 percent over that time. Based on these ratios. Table 3. Going back to department stores.

so utilities in different locations can be similar but show different profits. This makes it difficult to compare statements. Several other general problems frequently crop up. ranging from hydroelectric to nuclear. Finally. profitability is strongly affected by regulatory environment. most utilities operate as regulated monopolies. and many are organized as cooperatives with no stockholders. However. such events can give misleading signals. may affect financial performance. In comparing fi rams. This group is often thought to be relatively homogeneous. so they don’t compete much with each other. For example. . Second. First. such as a one-time profit t from an asset sale. for example. For firms in seasonal businesses (such as a retailer with a large Christmas season). at least not historically. Many have stockholders. Every business organization needs to keep transparent record for further business decision. for any particular firm. Conclusion Financial statements are the heart of today’s accounting process. so the operating activities of these utilities can differ quite a bit. different firms use different accounting procedures—for inventory. Even companies that are clearly in the same line of business may not be comparable. For this reason every organization should keep financial records. unusual or transient events. There are several different ways of generating power. different firms end their fiscal years at different times. Finally. this can lead to difficulties in comparing balance sheets because of fluctuations in accounts during the year. electric utilities engaged primarily in power generation are all classified in the same group (SIC 4911).The existence of different standards and procedures makes it differ cult to compare financial statements across national borders.

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