Review two of your peers’ posts and provide ideas to overcome the confusion and strategies to build a better
understanding of and confidence toward that financial statement. Feel free to share any visuals or resources you may find online to help support your ideas of overcoming confusion with your peers. Both peers have to have a response. Thank you
This is one of my peers post below.
What makes financial statements confusing and intimidating to learn in my case is determining and understanding which information I should use for each report and where to find the information. According to Pride, Kapoor & Hughes (2015), “the statement of cash flows illustrates how the company’s operating, investing, and financing activities affect cash during an accounting period”. The focus of the statement of cash flow is on how much cash the business has on hand to pay its’ bills. The cash flow statement is divided into three sections: Cash flow from operations, cash flow from investing activities, cash flow from financing activities. The cash flow statement is not a part of the double entry system of accounting. As a result it is often challenging for students to prepare the statement because we often confuse where we should pull the information from and where to place it on the cash flow statement(Hertenstein & Mckinnon, 1997).
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Hertenstein, J. H., & Mckinnon, S. M. (1997). Solving the puzzle of the cash flow statement. Business Horizons, 40(1), 69-76.
Pride, W. M., Hughes, R. J., & Kapoor, J. R. (2013). Foundations of business. Mason, OH: South-Western/Cengage Learning.
This is another peers post.
Financial statements are defined as records that outline the financial activities of a business, an individual or any other entity. Financial statements are meant to present the financial information of the entity in question as clearly and concisely as possible for both the entity and for readers. Financial statements for businesses usually include: income statements, balance sheet, statements of retained earnings and cash flows, as well as other possible statements. In most cases the most confusing thing about financial statements is the amount of information and data that goes into making them. Although they are meant to be simple and as clear as possible there will still be some confusion in reading them and/or entering numerical data into them especially if one is not sure of where the data should be placed and for what reason. Financial data is transformed into financial information and then it is reported on these three important statements, which ultimately assist in making decisions for a business. When financial statements are created with terminology that is hard to understand it will complicate the understanding of the accounting entries; thus confusing someone that is new to reading or even creating financial statements. The best way to overcome the confusion and intimidation reading financial statements is to first know and understand what the numbers represent within the financial statements. Understanding what a company does, its products and/or services, and the industry in which it operates.
The Statement of Cash Flows seems to one of the more confusing statements to understand. The above sample is over the course of 4 accounting periods from Microsoft Corp. The Statement of Cash Flows reports the impact of a firm’s operating, investing, and financial activities on cash flows over an accounting period. This particular statement shows how the company obtains and spends cash, the differences between net income and cash flows, if the company generates enough cash from operations to sustain the business, pay-off existing debts as they mature, and if the company has enough cash to take advantage of new investment opportunities. One item that is confusing on this statement is the differences between net income and cash flows. Net income occurs when revenues exceed expenses and the cash flows is the amount of cash that a business generates or loses during a reporting period. The main differences are the expense accruals (expenses included in the net income in which no cash payments have been made), prepaid expenses (cash payments for costs that can be assets instead of expenses that have not been consumed yet), deferred revenues (not yet earned although cash may have already been received), and sales on credit (have been earned although cash receipts have not been received).
Knowing and understanding the above information and how it all works together within the Cash Flows Financial statement is confusing, thus makes it intimidating to read, input, and understand what is being presented. Once the information is understood on a smaller scale and introduced into other elements then it becomes easier to understand and comprehend.
Loth, R. (n.d.). 12 Things You Need To Know About Financial Statements. Retrieved on February 4, 2016 fromhttp://www.investopedia.com/articles/basics/06/financialreporting.asp
Financial Statements. (n.d.). Retrieved on February 4, 2016 from http://www.investopedia.com/terms/f/financial-statements.asp
Pride, B., Hughes, B., & Kapoor, J. (2015). Foundations of Business. Stamford, CT: Cengage Learning. (441)
Pride, B., Hughes, B., & Kapoor, J. (2015). Foundations of Business. Stamford, CT: Cengage Learning. (449)
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