Response to Comments on DQ1 C and DQ2 KSmith,Wk3 - Essay Example

DQ1 I agree with you about the importance of the financial ments. The financial ments are prepared in a standardized format in order to create consistency within the statements. The statement of different corporations will have different numbers, but the same basic format. The classified balance sheet is prepared in order to let the users distinguish among the different accounts. The statement of cash flow is very important as well. The main components of the statement of cash flow are operating, financing, and investing activities (Weygand & Kieso, Kimmel, 2003).

You mentioned that the annual report is the most important report prepared by corporations for the shareholders and other stakeholders. I agree that the annual report is the most informative corporate statement since it provides valuable information about the business, its finances, and the strategic goals of the enterprise. Learning the basics about financial statements can help investors make better investing decisions. DQ2 The use of a classification system in the balance sheet is very useful because it creates consistency between statements.

Investors can utilize the information contained in the classified balance sheet to perform quantitative financial analysis such as ratio analysis, variance analysis, or sensitivity analysis. The list of assets included in the classified balance sheet is ordered from top to bottom with the top accounts representing the most liquid ones. The most liquid financial asset is cash (Investopedia, 2011). When I answered this question originally I also could not think of any additional classification that could add value to the classified balance sheet.

The balance sheet internal structure follows the logic of the basic accounting equation which states that assets equals liabilities plus stockholder’s equity. The format used in the classified balance sheet is very easy to understand which makes it easier for teachers to teach accounting students. References Investopedia.com (2011). Liquid Asset. Retrieved April 19, 2011 from http://www.investopedia.com/terms/l/liquidasset.asp Weygandt, J., Kieso, D., Kimmel, P. (2003). Accounting Principles (6th ed.). New York: John Wiley & Sons.