Financial Statements – A Book Review
Financial Statements – What You Can Learn
Financial Statements: A Step-By-Step Guide to Understanding and Creating Financial Reports is a great book for those that want a deeper understanding of financial statements or are starting out in accounting. It is concise and straight to the point with lots of clarity. It focuses on explaining the basics, how all parts of the financial statements interact and provides examples of how it works.
The book is divided into 3 sections. Section A goes over the terminology of the financial statements and what they are in a clear simple manner. Simple, concise examples and an emphasis on the basics is what makes this book so great.
For example, the book explains the balance sheet role as
Has today (assets) = Owes today (liabilities) + Worth today (shareholders’ equity)
and the income statement as
what’s sold in a period minus what it cost to make minus selling and general expenses for the period equals income for the period
With the addition of graphs, tables and other visual formats, it truly nails the concepts clearly into your head.
With all the explanations from section A, section B now goes onto applying all that we’ve learnt. The book leads the reader through drafting the actual books of a hypothetical company. Common and everyday actions that the company takes to do its business is recorded step by step with many different scenarios as the company grows and expands. It shows the reader how transactions are processed and recorded.
The final section is a short section which details information about ledgers and journals, ratios, alternative accounting policies and how financial statements can be distorted by companies.
Financial Statements is a great book for anyone who truly wants to understand how to read financial statements and to be able to picture the health of a company by reading its financial statements. It is just as good for those who want a quick freshen up. Although it is geared towards accounting, all investors should have a good handle on accounting in order to be able to value and research companies.
You should have a knowledge of how business operates and the language of business [accounting], some enthusiasm for the subject, and qualities of temperament, which may be more important than IQ points. These will enable you to think independently and to avoid various forms of mass hysteria that infect the investment markets from time to time – Warren Buffett
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