The purpose of financial statements is to provide useful information about a company's financial position, performance, and cash flows to stakeholders such as investors, creditors, and regulators.

The main components of financial statements are the balance sheet, income statement, statement of cash flows, and statement of changes in equity (or shareholder's equity statement).

The balance sheet is a financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific point in time.

The income statement, also known as the profit and loss statement, reports a company's revenues, expenses, and net income or loss over a period of time.

The statement of cash flows reports a company's cash inflows and outflows from operating, investing, and financing activities over a period of time.

The statement of changes in equity shows the changes in a company's equity accounts, such as common stock, retained earnings, and other comprehensive income, over a period of time.

GAAP stands for Generally Accepted Accounting Principles, which are the standard framework of guidelines for financial accounting used in the United States.

IFRS stands for International Financial Reporting Standards, which are the accounting standards adopted by most countries outside the United States.

The revenue recognition principle states that revenue should be recognized when it is earned, regardless of when cash is received.

The matching principle states that expenses should be recognized in the same period as the related revenues to accurately calculate net income.

The cost principle states that assets should be recorded at their historical cost, which is the amount of cash or cash equivalent paid to acquire them.

The accrual basis of accounting recognizes revenues when they are earned and expenses when they are incurred, regardless of when cash is received or paid.

The going concern assumption states that a company will continue to operate for the foreseeable future and will not be forced to liquidate or curtail its operations.

Notes to financial statements provide additional information and explanations about the items reported in the financial statements.

The accounting equation is Assets = Liabilities + Shareholders' Equity, which shows the relationship between a company's assets, liabilities, and equity.

The double-entry bookkeeping system is a system of recording transactions where every transaction affects at least two accounts, ensuring that the accounting equation remains in balance.

A trial balance is a list of all account balances in a company's general ledger, used to ensure that the total of debit balances equals the total of credit balances before preparing financial statements.

Current assets are assets that are expected to be converted into cash or consumed within one year, while non-current assets are assets that are expected to provide future economic benefits beyond one year.

Current liabilities are obligations that are due within one year, while non-current liabilities are obligations that are due after one year.

Depreciation is an accounting method used to allocate the cost of a long-term asset over its useful life, recognizing the gradual decline in the asset's value over time.

Operating income is the profit earned from a company's main business operations, while net income is the total profit earned after accounting for all revenues, expenses, gains, and losses.

The allowance for doubtful accounts is an estimate of the amount of accounts receivable that a company expects to be uncollectible, used to reflect the actual expected cash inflows from accounts receivable.

Inventory valuation methods, such as FIFO (First-In, First-Out) and LIFO (Last-In, First-Out), are used to determine the cost of goods sold and the value of ending inventory for a given period.

The statement of retained earnings shows the changes in a company's retained earnings (undistributed profits) from the beginning to the end of a period.

The statement of stockholders' equity shows the changes in a company's equity accounts, such as common stock, preferred stock, and retained earnings, over a period of time.

The operating cycle is the period of time between the acquisition of materials or services used in production and the final cash realization from sales of the resulting products or services.

The fair value principle states that assets and liabilities should be reported at their fair market value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

The time period assumption states that a company's activities should be divided into specific time periods, such as months or years, for the purpose of preparing financial statements.

The materiality principle states that companies should disclose information that is significant or material to decision-makers, and can omit information that is insignificant or immaterial.

The conservatism principle states that when faced with uncertainty, companies should report the option that is least likely to overstate assets or income.

The consistency principle states that companies should use the same accounting methods and practices from one period to the next to ensure that financial statements are comparable over time.

The substance over form principle states that transactions and events should be accounted for based on their economic substance rather than their legal form.

The full disclosure principle states that companies should disclose all relevant information that could affect a user's understanding of the financial statements.

The monetary unit assumption states that only transactions and events that can be measured in monetary terms should be recorded in financial statements.

The economic entity assumption states that a business is separate and distinct from its owners, and that transactions should be recorded and reported separately from the owners' personal transactions.

The historical cost principle states that assets should be recorded at their original cost, which is the amount of cash or cash equivalents paid to acquire them.

The matching principle states that expenses should be recognized in the same period as the related revenues to accurately calculate net income.

The revenue recognition principle states that revenue should be recognized when it is earned, regardless of when cash is received.

The cost principle states that assets should be recorded at their historical cost, which is the amount of cash or cash equivalent paid to acquire them.

The going concern assumption states that a company will continue to operate for the foreseeable future and will not be forced to liquidate or curtail its operations.

The accrual basis of accounting recognizes revenues when they are earned and expenses when they are incurred, regardless of when cash is received or paid.

The cash basis of accounting recognizes revenues when cash is received and expenses when cash is paid, regardless of when they are earned or incurred.

The straight-line depreciation method is a method of allocating the cost of an asset over its useful life by deducting an equal amount of depreciation expense each year.

Accelerated depreciation methods, such as the double-declining balance method, allocate more depreciation expense in the early years of an asset's life and less in later years.

The LIFO (Last-In, First-Out) inventory valuation method assumes that the most recently produced or purchased items are sold first, resulting in the oldest costs being assigned to the ending inventory.

The FIFO (First-In, First-Out) inventory valuation method assumes that the oldest items in inventory are sold first, resulting in the most recent costs being assigned to the ending inventory.

A petty cash fund is a small amount of cash kept on hand to pay for minor expenses, which helps minimize the need for writing checks for small amounts.

An accounts receivable aging schedule categorizes outstanding customer balances by the length of time they have been outstanding, which helps identify potential uncollectible accounts.

The allowance for sales returns and allowances is an estimate of the amount of sales that will be returned or refunded, which is used to adjust the reported sales revenue.

A payroll register is a record that lists the wages and deductions for each employee, which is used to prepare payroll checks and journal entries.