Financial Statements Demystified

This book is intended for people who want to understand the information provided in fi nancial statements. We don’t describe all the accounting details of preparing fi nancial statements, which is an approach typically employed in many accounting courses. Since many accounting students, upon graduation, will hold positions requiring that they prepare their employers’ fi nancial statements or audit their clients’ fi nancial statements, the preparer approach employed in college makes sense for accounting majors. However, that is not our goal here. Instead, we focus on a user approach to understanding fi nancial statements. Because of the user approach we take in this book, you don’t need any accounting courses or background to learn this material. Instead, this book is meant to help people base decisions on the information provided in fi nancial statements. What kinds of decisions might you be thinking of making in which fi nancial statements can be useful? Well, perhaps you are an investor thinking about your future retirement and are wondering whether you might like to purchase some stock in a particular company. Or perhaps you already own stock in a company and are trying to decide if this is a good time to sell that stock. Or perhaps you are a creditor wondering whether you should lend some money to an organization. Perhaps you are a union offi cial involved in negotiations with a business and want to have a thorough understanding of the business’s fi nancial health. Perhaps you own a business and, regardless of its size, want to understand the fi nancial statements compiled by your accountants better to help you make future business decisions. Perhaps you are a manager in an organization that has its own accounting department, which routinely prepares fi nancial statements for your use, and you want to comprehend better the statements they are sending to your offi ce. Or perhaps you are about to enter a graduate business program without an accounting undergraduate degree and want a reference guide to the content and terminology of fi nancial statements.