CHAPTER II
THEORITICAL FOUNDATION
2.1 Financial Statement Overview
Based on the International Accounting standard Board (IASB), the main objective of
financial
statement
is
to
provide
useful economic
information
about
the
financial
position,
performances
and
changes
in
financial
position
of
an
entity
for
different
user in order to make
important decision such as credit decision and making
investment (Alfredson et all.2004, p.61). To
what we have discussed in the previous
chapter, the principle financial statement of a corporation comprises into three which
are
the
balance
sheet,
income
statement
and
the
statement
of
cash
flow.
Further
details about each part are as follows:
2.1.1 Balance Sheet
According to Horngren and Harrison (2007, p.19), the balance sheet is the
prime sources of information which reflects the financial situation of an entity
through the summary of the company’s assets, liabilities and equities. When
referring to the format of the balance sheet itself, usually the assets items are
being located at the top and at the left side of the balance sheet, while both the
liabilities and owner’s equity are located at the right side of the balance sheet
with liabilities being located on top of owner’s equity; that is that there are no
separation between debit and credit in the balance sheet.
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