Financial Statements and Accounting Concepts


There are many users of business information who do not work for companies but are associated with them directly or indirectly. These users are considered as external users, and they do not have access to the financial information generated by different departments of a company. Therefore, they have to rely on the qualitative and quantitative information prepared by the company’s accountants and verified by its auditors. This information is periodically prepared, and it is available to its users after some time. There are different financial statements prepared by companies, which are identified and discussed along with their purpose in this paper. There are different accounting concepts related to the information prepared and reported by companies, which are also covered in this paper.

Importance of the Study

The study of the accounting cycle and financial statements is important as it could help users to understand the purpose of financial reporting and assist them in making their decisions. The disclosures by companies are assessed for their relevance, reliability, completeness, and timeliness. For example, shareholders would be interested in determining the return on their investment in the company’s stocks. Therefore, they would consult the financial information provided by the company to estimate their return. Furthermore, such a study can help in understanding how financial reporting affects different stakeholders.

Haven’t Found The Relevant Content? Hire a Subject Expert to Help You With
Financial Statements and Accounting Concepts
Post Your Own Question And Get A Custom Answer
Hire Writer

Accounting Cycle

The seventh step of the accounting cycle is the preparation of financial statements. There are different financial statements that are prepared by publicly listed companies. These financial statements summarize the financial performance of the company in the last reporting year. Therefore, it could be stated that they are prepared and reported at the year-end. A company’s year-end is the last working day of the accounting period. Moreover, companies can change their reporting period to reconcile with their tax period (Rich et al. 132). In addition to year-end financial statements, companies also prepare financial statements on a quarterly basis. These statements are important as they provide timely information to users as compared to year-end financial statements. Furthermore, companies provide comparative financial statements of the previous financial period. It allows users to compare and evaluate the financial performance of companies in the last two accounting periods.

Basic Financial Statements

There are four different financial statements that are prepared by companies. These include “statement of income (income statement), statement of financial position (balance sheet), statement of changes in equity, and statement of cash flows” (Whittington 148). The statement of income is prepared for the entire financial period. It indicates the company’s revenue, cost of sales, selling and administrative expenses, and other expenses to determine its gross profit and operating profit. Furthermore, the statement includes interest expenses and tax paid by the company to determine its net profit. In addition to these, the statement also indicates the income attributable to the company’s equity holders and minority shareholders along with the basic and diluted earnings per share. The statement of financial position provides information about the company’s assets, liabilities, and equity on the last working day of the accounting period. It implies that the information provided in the statement is for a particular day and not for the entire period. The statement of cash flows is the most useful financial statement as it provides information about cash receipts and cash payments made by the company during the accounting period. The statement is structured in three different sections including cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities. The sum of cash flows from all these activities determines the ending cash position of the company on the last working day of the accounting period. The statement of changes in equity provides details of changes in the owner’s equity during the year. The changes in equity are due to the company’s earnings, dividends paid, revaluation of assets and liabilities, and equity withdrawals, etc. (Yona 117).

Users of Financial Statements and Their Purpose of Using Such Statements

There are different users of financial statements including customers, creditors, shareholders, investors, financiers, tax authorities, government, and the general public. They all have different interests, and their requirements of information also vary significantly. For example, creditors would be interested in determining whether the company can settle its accounts payable. They assign a credit limit to a company based on its previous dealing with them. On the other hand, customers would assess the company’s financial worth and ability to manage their orders. Most importantly, shareholders, who provide finance to the company, would be interested in determining if their investment in its equity would generate a sufficient return for them. Managers act as agents of shareholders (Porter and Norton 11). Therefore, they need to make decisions that are favorable and generate value for shareholders. The regulators and tax authorities would assess the company’s compliance with regulations and policies to ensure that it is fulfilling its corporate obligations. Moreover, the general public would be interested in the information about the company’s actions and investments for its corporate social responsibility. Therefore, it could be argued that all users of financial information have different information needs that must be satisfied by the company through its reporting.

Accounting Concepts

There are different accounting concepts that relate to the preparation of financial statements. Some important concepts are going concern concept, accrual concept, matching concept, consistency concept, and materiality concept. The accrual concept requires companies to “recognize revenues when they are earned and expenses when assets are consumed” (Pingle 33). The going concern concept is based on the assumption that the company will continue to use its assets in the coming periods. The matching concept requires companies to “recognize expenses in the same period when revenue is recognized” (Pingle 95). The materiality concept implies that companies should record all those transactions that are likely to affect the users of financial information and their omission would result in wrong decisions (Flood 16). The consistency concept requires companies to follow accounting principles and policies on a consistent basis. They should not change their accounting methods without adjusting the previous period’s financial information based on the new methods. In addition to these concepts, there are other concepts including conservatism and economic entity concept that should also be considered by companies when preparing their financial statements.


The discussion provided in this paper concludes that preparation of financial statements by companies is a key step in the accounting cycle. There are different types of financial statements, and they serve various objectives of users. These financial statements are prepared on a regular basis and their frequency varies. Finally, companies are expected to adhere to the concepts and principles of accounting when preparing their financial statements.

Works Cited

Flood, Joanne M. Wiley GAAP 2015: Interpretation and Application of Generally Accepted Accounting Principles. John Wiley & Sons, 2014.

Pingle, Michael. Basic accounting concepts: A Beginner’s Guide to Understanding Accounting. Xlibris Corporation, 2013.

Porter, Gary A., and Curtis L. Norton. Financial Accounting: The Impact on Decision Makers. Cengage Learning, 2012.

Rich, ‎Jay, et al. Cornerstones of Financial Accounting. Cengage Learning, 2012.

Whittington, O. Ray. Wiley CPA Exam Review 2013, Financial Accounting and Reporting. John Wiley & Sons, 2012.

Yona, Lucky. Financial Accounting for Executive MBA. AuthorHouse, 2013.


Why Hire a Professional Essay Writer from MyHomeworkGeeks

Quality Urgent Essays

Domyhomeworkk online platform provides the best essay writing service ever received elsewhere, thanks to our professional essay writers. Experience gained in the 10+ years of being in the assignment writing industry is also an added advantage.

Professional and Experienced Academic Writers

A lot is done to maintain us as the best essay writing service provider. Besides owning a degree from a recognized university, a writer must pass the rigorous tests we take them through before they are considered eligible to offer urgent essay help on our website.

Affordable Urgent Assignment Help

Who said a reliable website should not be cheap also? While it is human nature to associate prices with quality, that does not always work. At, we guarantee you cheap and urgent essay help without compromising the quality.

24/7 Available Urgent Essay Writing Service

Whether it is a ‘write my essay for me cheap’ or ‘edit my essay’ order you want to request, always feel free to reach us at any time of the day. Our experts work in shifts to ensure that you access urgent essay writing services at any time of the day.

Plagiarism Free Essays Online

The punitive measures that come with plagiarized content are so harsh, and we understand that. We consequently ensure to write each client’s papers from scratch no matter how urgent the essay is. To acknowledge borrowed content, our quick writer references and cites the work.

Wow Customer Support 24/7

Our support agents are available 24 hours a day 7 days a week and committed to providing you with the best customer experience. Get in touch whenever you need any assistance.

Try it now!

Calculate the price of your order

We'll send you the first draft for approval by at
Total price:

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Our Services

So much stress and so little time? Take care of yourself: let us help you with your tasks. We offer all kinds of writing services.


Custom Essay Writing Services

No matter what kind of academic paper you need and how urgent you need it, you are welcome to choose your academic level and the type of your paper at an affordable price. We take care of all your paper needs and give a 24/7 customer care support system.


Admission and Business Papers

An admission essay is an essay or other written statement by a candidate, often a potential student enrolling in a college, university, or graduate school. You can be rest assurred that through our service we will write the best admission essay for you.


Editing and Proofreading

Our academic writers and editors make the necessary changes to your paper so that it is polished. We also format your document by correctly quoting the sources and creating reference lists in the formats APA, Harvard, MLA, Chicago / Turabian.


Revision Support

If you think your paper could be improved, you can request a review. In this case, your paper will be checked by the writer or assigned to an editor. You can use this option as many times as you see fit. This is free because we want you to be completely satisfied with the service offered.

Have a homework question? Get help from verified tutors now!