Reflection Term Paper Example | Topics and Well Written Essays - 500 words

Reflection - Term Paper Example The four major financial statements are the income statement, balance sheet, statement of retained earnings, and the statement of cash flow. The income statement and balance sheet are often referred to as common size financial statements. The income statement measures the profitability of a company during a specific period of time. The normal accounting cycle takes one year to complete. The financial statements are the end result of the accounting cycle. The balance sheet shows the financial position of a company at a specific point in time. The three major components of the balance sheet are the assets, liabilities, and stockholders equity. The balance sheet is prepared based on the logic from the basic accounting of equation. The basic accounting equation states that assets equal liabilities plus stockholders equity. The statement of cash flow illustrated the inflow and outflows of cash during a financial period. The three sections of the statement of cash flow are operating, finan cing, and investing. The statement or retained earnings outlines the changes in equity during a financial period. The Sarbanes Oxley Act of 2002 was created by Senator Paul Sarbanes and Representative Michael Oxley. The purpose of the act was to raise investor confidence in the stock market after the financial debacles that occurred at Enron, Tyco, and WorldCom among other companies. The Act was created to increase the accountability, reliability, and accuracy of financial information. The Sarbanes Oxley Act is composed of 11 titles. The 11 titles of the Sarbanes-Oxley Act are listed below: The third subject of accounting that will be discussed is conservatism. Conservatism states that if a situation arises where there are two acceptable alternatives for reporting an item, conservatism directs the accountant to choose the alternative that will result in less net income and/or less asset amount (Accountingcoach, 2011). When an accountant is