Constructing financial statements and the framework of accounting

This paper introduces each of the principal financial statements, beginning with the Profit and Loss account and Balance Sheet. It begins with an overview of the regulations governing financial statements and describes the matching principle, which emphasizes prepayments, accruals and provisions such as depreciation. Accounting provides an account - an explanation or report in financial terms - about the transactions of an organization. Accounting enables managers to satisfy the stakeholders in the organization (owners, government, financiers, suppliers, customers, employees etc.) that they have acted in the best interest of the stakeholders rather than themselves. This explanations are provided to stakeholders through financial statements or reports, often referred to as the company's accounts'. The main financial reports are the Profit and Loss account, The Balance Sheet and the Cash flow statement. The presentation of financial reports must comply with Schedule 4 to the Companies Act, 1985, which prescribes the form and content of accounts. Section 226 of the Act requires the financial reports to represent a 'true and fair view' of the state of affairs of the company and its profits. The companies Act requires directors to state whether the accounts have been prepared in accordance with accounting standards and to explain any significant departures from those standards. For companies listed on the Stock Exchange, there are additional rules contained in the Listing Requirements, commonly known as the Yellow Book, which requires the disclosure of additional information.