Page 49 - Finance for Non-Financial Managers

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Finance for Non-Financial Managers
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Manager’s Checklist for Chapter 2
❏ Financial reports must be reasonably accurate, formatted in
a relevant way, and delivered in timely fashion to be useful
for helping managers make decisions about the company.
For each ARTistic attribute, there is a trade-off between the
degree of perfection and the cost of achieving it.
❏ The balance sheet is a snapshot of the financial condition
of a company as of a point in time, while the income state-
ment and the statement of cash flow tabulate all the trans-
actions that have occurred during a period of time, i.e.,
between two balance sheet dates.
❏ The chart of accounts is an organized list of all the kinds of
transactions that typically occur, so that transaction totals
can be meaningfully grouped, summarized, and reported in
financial statements.
❏ Accounting transactions are recorded in a balanced way,
with each transaction affecting the scales equally, to
ensure that the transaction has been recorded completely
and correctly. If the scales are always in balance, the bal-
ance sheet will always be in balance.
❏ Assets always equal the sum of liabilities and equity. Put
another way, assets minus liabilities always equal stock-
holders’ equity or owners’ equity. As a result, increasing
assets without increasing liabilities by a like amount
increases equity. This is achieved in its simplest form when
the company makes a profit.
❏ The accrual method of accounting is the standard for near-
ly all companies. Under the accrual method, transactions
are recorded when an economic event has occurred, such
as a customer buying a product or the company purchas-
ing supplies. The results of these transactions are record-
ed, in general, as soon as the commitment to enter into
the transaction occurs, not when cash is received or paid
for the commitment, which might be much later.