1. The three main reports that are part of financial accounting include the balance sheet, the income statement, and the statement of cash flows ("Financial Accounting"). The balance sheet shows how the business owner's assets and liability balance out. Essentially, the balance sheet tells him whether he is in the red or in the black financially. Once he has completed a balance sheet, he will have a record of his cash, the amount of money he owes for goods and services, and the amount of money that is due him.
The income statement tells the owner how much profit he has made and how much he has lost within a certain period of time, so it is also referred to as a profit and loss statement. This report basically adds up the business's revenues and gains against its expenses and losses to arrive at a net income.
The cash flow statement is a three-part report that shows the changes in a company's cash position over a certain period of time. The first part of the report shows cash used for operations, the second part shows cash used for investments, and the third part shows cash used for financing. These three sections taken together give the business owner a clear understanding of where his cash is going and what proportion of cash is being allocated to each of the three activities-operations, investments, and financing. This enables him to assess whether he is using too much of his cash for a particular activity.
2. The Sarbanes-Oxley Act improves the validity of the information provided by a firm's accounting system by requiring a company's chief officers to take responsibility for their financial statement. This added accountability ensures greater validity, because the officers do not want to be identified with any accounting malfeasance.
In addition, management has to issue an internal control report that lays out the management's responsibility for the company's financial r
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