Read Aloud the Text Content

This audio was created by Woord's Text to Speech service by content creators from all around the world.

Text Content or SSML code:

4. Financial Statement Relationships a. Financial statements complement each other. They describe different aspects of the same transactions, and more than one statement is necessary to provide information for a specific economic decision. b. The components (elements) of one statement relate to those of other statements. Among the relationships are those listed below. 1) Net income or loss from the statement of income is reported and accumulated in the retained earnings account, a component of the equity section of the statement of financial position. 2) The components of cash and equivalents from the statement of financial position are reconciled with the corresponding items in the statement of cash flows. 3) Items of equity from the statement of financial position are reconciled with the beginning balances on the statement of changes in equity. 4) Ending inventories are reported in current assets on the statement of financial position and are reflected in the calculation of cost of goods sold on the statement of income. 5) Amortization and depreciation reported in the statement of income also are reflected in asset and liability balances in the statement of financial position. 5. Accrual Basis of Accounting a. Financial statements are prepared under the accrual basis of accounting. Accrual accounting records the financial effects of transactions and other events and circumstances when they occur rather than when their associated cash is paid or received. 1) Revenues are recognized in the period in which they were earned even if the cash will be received in a future period. 2) Expenses are recognized in the period in which they were incurred even if the cash will be paid in a future period. Under the cash basis, revenues are recognized when cash is received and expenses are recognized when cash is paid. Under GAAP, financial statements cannot be prepared under the cash basis of accounting.