Financial Statements

Financial statements are prepared by companies to provide stakeholders with financial information about the company's performance and position.
Four main financial statements:
1. Balance Sheet: snapshot of the company's financial position at a specific point in time, including assets, liabilities, and equity.
2. Income Statement: summarizes revenues and expenses over a specific period of time, such as a month, quarter, or year.
3. Statement of Cash Flows: shows the inflows and outflows of cash over a specific period of time, including operating, investing, and financing activities.
4. Statement of Changes in Equity: summarizes the changes in a company's equity over a specific period of time.

Revenue recognition is the process of determining when revenue is earned and reported on the income statement.
Four steps to recognize revenue:
1. Identify the contract: determine if a valid contract exists between the company and its customer.
2. Identify the performance obligations: determine the specific goods or services promised to the customer.
3. Determine the transaction price: determine the amount of consideration to be received from the customer.
4. Allocate the transaction price: allocate the transaction price to each performance obligation.
Revenue recognition criteria:
- Persuasive evidence of an arrangement exists.
- Delivery has occurred or services have been rendered.
- Fees are fixed or determinable.
- Collectibility is reasonably assured.

Asset valuation is the process of determining the value of a company's assets.
Asset valuation methods:
- Cost method: assets are valued at their original cost.
- Market value method: assets are valued at their current market value.
- Lower of cost or market value method: assets are valued at the lower of their original cost or current market value.
Types of assets:
- Current assets: expected to be converted into cash within one year or within the company's normal operating cycle.
- Non-current assets: not expected to be converted into cash within one year or within the company's normal operating cycle.

Liability accounting involves recording and reporting a company's debts or obligations.
Types of liabilities:
- Current liabilities: expected to be paid within one year or within the company's normal operating cycle.
- Non-current liabilities: not expected to be paid within one year or within the company's normal operating cycle.
Liability recognition criteria:
- The company has a present obligation.
- The company has a probable outflow of resources.
- The amount of the obligation can be estimated reliably.
Liability valuation methods:
- Amortized cost method: liabilities are valued at their original cost, minus any amortization or discount.
- Fair value method: liabilities are valued at their current market value.

Prepared by companies to provide stakeholders with financial information about the company's performance and position
Four main financial statements:
- Balance Sheet: snapshot of the company's financial position at a specific point in time, including assets, liabilities, and equity
- Income Statement: summarizes revenues and expenses over a specific period of time, such as a month, quarter, or year
- Statement of Cash Flows: shows the inflows and outflows of cash over a specific period of time, including operating, investing, and financing activities
- Statement of Changes in Equity: summarizes the changes in a company's equity over a specific period of time

Process of determining when revenue is earned and reported on the income statement
Four steps to recognize revenue:
- Identify the contract: determine if a valid contract exists between the company and its customer
- Identify the performance obligations: determine the specific goods or services promised to the customer
- Determine the transaction price: determine the amount of consideration to be received from the customer
- Allocate the transaction price: allocate the transaction price to each performance obligation
Revenue recognition criteria:
- Persuasive evidence of an arrangement exists
- Delivery has occurred or services have been rendered
- Fees are fixed or determinable
- Collectibility is reasonably assured

Process of determining the value of a company's assets
Asset valuation methods:
- Cost method: assets are valued at their original cost
- Market value method: assets are valued at their current market value
- Lower of cost or market value method: assets are valued at the lower of their original cost or current market value
Types of assets:
- Current assets: expected to be converted into cash within one year or within the company's normal operating cycle
- Non-current assets: not expected to be converted into cash within one year or within the company's normal operating cycle

Involves recording and reporting a company's debts or obligations
Types of liabilities:
- Current liabilities: expected to be paid within one year or within the company's normal operating cycle
- Non-current liabilities: not expected to be paid within one year or within the company's normal operating cycle
Liability recognition criteria:
- The company has a present obligation
- The company has a probable outflow of resources
- The amount of the obligation can be estimated reliably
Liability valuation methods:
- Amortized cost method: liabilities are valued at their original cost, minus any amortization or discount
- Fair value method: liabilities are valued at their current market value