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As previously indicated, organizations exist in many different forms, including business entities and not-for-profit entities. Business entities are typically service, merchandising, or manufacturing companies. Service businessesOrganizations---accountants, lawyers, and dry cleaners---that provide services to consumers., which include doctors, attorneys, accountants, dry cleaners, and maids, provide services to their customers. Merchandising businessesCompanies that buy and sell merchandise inventory., sometimes called retail or wholesale companies, sell goods to customers that other entities make. Manufacturing businessesMakers of goods sold to customers. make the goods that they sell to their customers.
Some business operations include combinations of these three categories. For example, an automotive repair shop might change oil (service function), sell parts such as oil filters (retail function), and rebuild engines (manufacturing function). The nature of the reporting entity affects the form and content of the information reported in an entity’s financial statements. For example, not-for-profit entities provide statements of revenues, expenditures, and changes in fund equity while business entities provide income statements. Similarly, income statements of retail companies show an expense item called cost of goods sold, but service companies that do not sell goods have no such item in their income statements. You should expect some diversity when reviewing real-world financial statements. Annual Report for The Topps Company, Inc.Organizations normally provide information, including financial statements, to stakeholders yearly in a document known as an annual reportDocument in which an organization provides information to stockholders, usually on an annual basis.. The annual report for Topps is reproduced in Appendix B of this text. This report includes the company’s financial statements (see pages 12–15 of the report). Immediately following the statements are footnotes that provide additional details about the items described in the statements (see pages 16–30). The annual report contains the auditors’ report, which is discussed in Chapter 6. Annual reports also include written commentary describing management’s assessment of significant events that affected the company during the reporting period. This commentary is called management’s discussion and analysis (MD&A). The U.S. Securities and Exchange Commission (SEC) requires public companies to file an annual report on a document known as a 10-K. The SEC is discussed in more detail later. Even though the annual report is usually flashier (contains more color and pictures) than the 10-K, the 10-K is normally more comprehensive with respect to content. As a result, the 10-K report can substitute for the annual report, but the annual report cannot substitute for the 10-K. In an effort to reduce costs, some companies use the 10-K report as their annual report. Special Terms in Real-World ReportsThe financial statements of real-world companies include numerous items relating to advanced topics that are not covered in introductory accounting textbooks, especially the first chapter of an introductory accounting textbook. Do not, however, be discouraged from browsing through real-world annual reports. You will significantly enhance your learning if you look at many annual reports and attempt to identify as many items as you can. As your accounting knowledge grows, you will likely experience increased interest in real-world financial reports and the businesses they describe. We encourage you to look for annual reports in the library or ask your employer for a copy of your company’s report. The Internet is another excellent source for obtaining annual reports. Most companies provide links to their annual reports on their home pages. Look for links labeled “about the company” or “investor relations” or other phrases that logically lead to the company’s financial reports. The best way to learn accounting is to use it. Accounting is the language of business. Learning the language will serve you well in almost any area of business that you pursue. Problems 1-30A | |||||||||||
