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Chapter 1: Question 2Q (page 22)

Differentiate between 鈥渇inancial statements鈥� and 鈥渇inancial reporting.鈥�

Short Answer

Expert verified

A financial statement is a formal record that explains the financial activities and position of an entity. In contrast, financial reporting is an accounting practice that involves studying the entity鈥檚 financial statements and highlights its financial information and performance.

Step by step solution

01

Purpose of Financial Statement

Financial statements are the accounting books that present the financial condition of an entity and thereby reflect the expenses and income of the entity. Financial statements are important for providing information to potential investors to obtain finance from them.

02

Purpose of Financial Reporting

Financial reporting involves examining various financial statements to make important decisions by the stakeholders after understanding and interpreting the financial statements. It involves recording the operations of financial activities in the books of accounts.

Therefore, Financial statements can be seen as a result of the financial reporting process.

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Most popular questions from this chapter

What are the primary advantages of having a codification of generally accepted accounting principles?

How are financial accountants challenged in their work to make ethical decisions? Is technical mastery of GAAP not sufficient to the practice of financial accounting?

ETHICS (Rule-Making Issues) When the FASB issues new pronouncements, the implementation date is usually 12 months from date of issuance, with early implementation encouraged. Karen Weller, controller, discusses with her financial vice president the need for early implementation of a rule that would result in a fairer presentation of the company鈥檚 financial condition and earnings. When the financial vice president determines that early implementation of the rule will adversely affect the reported net income for the year, he discourages Weller from implementing the rule until it is required.

Instructions:Answer the following questions.(a) What, if any, is the ethical issue involved in this case?

(FASB and Standard-Setting) Presented below are four statements which you are to identify as true or false. If false, explain why the statement is false.

  1. GAAP is the term used to indicate the whole body of FASB authoritative literature.
  2. Any company claiming compliance with GAAP must comply with most standards and interpretations but does not have to follow the disclosure requirements.
  3. The primary governmental body that has influence over the FASB is the SEC.
  4. The FASB has a government mandate and therefore does not have to follow due process in issuing a standard.

Distinguish between FASB Accounting Standards Updates and FASB Statements of Financial Accounting Concepts.
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