Big 3, health and well being of a company
Income statement
Balance sheet
Cash flow

Generally Accepted Accounting Principles GAAP
Securities and Exchange Commission SEC
Financial Accounting Standards Board FASC
Issue Statements of Financial Accounting Standards SFASs

10-K, annually filed with SEC

Quality of Financial Reporting Many opportunities for management to affect quality Timing of revenue and expense recognition Discretionary items

Balance Sheet
Summaries what firm owns and what firm owes to outsiders and to internal owners
Shows financial condition of a company on a particular date
Also called the statement of condition or the statement of financial position
Snapshot in time of assets=liabilities + equity

Assets are the engines of a business

Operating cycle Time required to purchase or manufacture inventory, sell the product and collect the cash
Working capital Also called net working capital Current assets less current liabilities

Current assets Cash and cash equivalents Cash awaiting deposit Cash in a bank account Short term investments that can be converted Marketable securities Held to maturity Trading securities Securities available for sale Accounts receivable Customer balances outstanding on credit sales Net realizable value- actual amount of accounts less an allowance for doubtful accounts Allowance for doubtful accounts Affects balance sheet valuation Important in assessing earnings quality Should reflect volume of credit sales, past experiences with customers, customer base, credit policies, collection practices and economic conditions. There should be a consistent relationship between the rate of change in sales, account receivable, and the allowance of doubtful accounts Inventories Items held for sale Items used in the manufacture of products