Last semester, due to the heavy workload that every first semester senior goes through, my independent seminar digressed a little bit from the mathematical fields of business. Therefore, this semester I decided to focus on something much more math-related in the field of business, and I picked financial accounting as the starting point of the study.
What is accounting anyways? Accounting is defined by a system for recording every single bit of information about a firm’s transaction with the purpose of providing summary statements of a business’ financial position and measure its performance for the people require or might find this information useful. There are commonly three sets of ‘books’ that a company keeps, and they are the Financial Accounting Book, which records very standard reports for stakeholders who require such information, the Tax Accounting Book to compute and record the taxes that the company is required to pay, and the Managerial Accounting book, which records the reports of business decisions made within the company.
In the US, there are a few requirements that a company has to follow for their financial accounting processes. All publicly traded companies in the US (companies that trade their stocks in the public stock market), are required to file 3 types of reports at different times during the year, following the Generally Accepted Accounting Principles (GAAP). The first is the 10-K. This is an annual report that contains financial information that accumulates over an entire year, making it very long, normally 200-300 pages. The 10-K is very similar to the 10-Q, which the second out of the three and is a quarterly report that the companies are required to make at the end of each business quarter every year. The last out of the three is the 8-K (Current Report), and and 8-K is required whenever the company goes through a major material event, such as a merger or hiring a new CEO.
Next week, I’ll write more about balance sheets and the balance sheet equation.