To avoid this conflict of interests, interests, the financial statements in the annual report are verified by an external independent party, the auditor. As you can imagine, managers face perverse incentives as they are the ones who prepare the annual report. The annual report is used by people outside the firm to assess its performance and to evaluate management. The annual report is made public periodically, usually every year, and it is filed with local authorities. Managers are responsible for preparing the annual report , which is a booklet that contains the financial statements of the firm, explanatory notes and a detailed discussion and analysis of the results. In other words, financial accounting is the process of taking financial data from the firm’s accounting records, making a summary in the form of an annual report and publishing it for the benefit of people outside the firm. In contrast, when accounting information is used to report the firm’s financial performance to outsiders, we refer to this activity as financial accounting. Managers use accounting information to make economic decisions to run the firm efficiently. When accounting accounting information information is produced for internal purposes, purposes, we refer to it as managerial accounting. Accounting does three things: a) it identifies events and transactions that have an economic impact on the firm, b) it records, classifies and summarizes these events, and c) it communicates this information to interested parties. Accounting is the language of business, used by managers to report financial information. This note is intended for managers who need to use financial statements but not prepare them. By the end, you will be able to understand and interpret simple financial statements. In this note, we are going to introduce the basics of financial accounting. f o r p y b t h g u a t " n o i t a z i l a i c e p S t n e m e g a n a M f o s n o i t a d n u o F " e s r u o c e h t r o f y p o c d e z i r o h t u a n a s i t n e m u c o d s i h T
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