Financial Statements: A Step-by-step Guide to Understanding and Creating Financial Reports

by Thomas R. Ittelson

Now the best-selling book of its kind has gotten even better.

This revised and expanded second edition of Ittelson’s master work will give you that firm grasp of “the numbers” necessary for business success. With more than 100,000 copies in print, Financial Statements is a perfect introduction to financial accounting for non-financial managers, stock-market investors, undergraduate business and MBA students, lawyers, lenders, entrepreneurs, and more.

Most introductory finance and accounting books fail either because they are written “by accountants for accountants” or the authors “dumb down” the concepts until they are virtually useless. Financial Statements deftly shows that all this accounting and financial-reporting stuff is not rocket science and that you can understand it! Ittelson empowers non-financial managers by clearly and simply demonstrating how the balance sheet, income statement and cash flow statement work together to offer a “snapshot” of any company’s financial health. Every term is defined in simple, understandable language. Every concept is explained with a basic, straightforward transaction example. And with the book’s uniquely visual approach, you’ll be able to see exactly how each transaction affects the three key financial statement of the enterprise.

Two new major sections with nine new chapters were added to this revised second edition of Financial Statements , simply the clearest and most comprehensive introduction to financial reporting available.

Genres: Finance, Business, Accounting, Economics, Nonfiction, Money, Reference

288 pages, Paperback

First published January 31, 1998

Reviews

[Amir · Rating 4 out of 5]

It is not easy to write an accounting book. A lot of accounting books are written for accountants which might makes a lot of sense however a large business audience may be left behind.

Mr. Ittelson does a decent job of balancing the explanation of accounting principles and the details behind these principles without getting into too many minute details as happen in other accounting books.

In the book first section, Mr. Ittelson starts with explaining the 3 accounting statements, each with its own line items and then “ties up” the 3 statements together, while explaining the different aspects of the movements between the statements. Mr. Ittelson also explains several important financial/accounting ratios at a later part of the book.

I think business owners and readers, who are not accountant by profession, will greatly benefit from the second section of the book. In this section Mr. Ittelson is doing a superb job of explaining the construction and use of the financial statement (as well as other financial tools and statements) via a hypothetical company. Mr. Ittelson takes the reader through many of “any corporation” transactions and weaves the fictional story with real financial statements.

I believe the reader may find the second section the most beneficial part of the book, and may use it not just as a learning tool but also as a reference guide for their own business situation. One caveat to the above statement, a novice financial reader may find this section a bit overwhelming so patience is required.

I am not sure if this book fits to be the first accounting book you should read, but if you are willing to invest the time and energy you will find many insights and nuggets of wisdom in this book.

[Ramil Karimzada · Rating 5 out of 5]

I have had a serious difficulty to understand the way financial statement is constructed and how different elements are connected to one another in it. After reading through this book, now everything is clear to me. Every element in a financial statement is perfectly explained based on the vivid examples by author, which ease the comprehension process of the whole concept into you.

[Alaeddin Hallak · Rating 5 out of 5]

I loved how it ties all basics you need to know about accounting, valuation, and capital budgeting into one concrete case study. I came out with a lot more confidence in understanding company's fundamentals through its financial statements, and this will help immensely in value investing.

[Sinh Tài · Rating 4 out of 5]

Great for non-finance types who want an interesting and applicable approach to financial reporting without going into details as in Accounting 101 classes. You get to understand the concepts of financial reporting, how the 3 statements are connected and most importantly what all the numbers and jargon really mean to a business. All are delivered in simple language with a good sense of humor of the author.

Also great for finance types who want a quick but thorough revision of financial reporting.

"This accounting and financial reporting stuff is not rocket science."

[Fengyang Song · Rating 5 out of 5]

The best book I have read in explaining very clearly what each line item on the financial statements mean. For example, how do they link to one another, and most importantly, how do we interpret these numbers.

Reading this book back to front was a joy, and this speaks volumes on a traditional dry topic for most people.

[Từ Đọc Đến Viết · Rating 5 out of 5]

Một cuốn sách rất hay và dễ hiểu cho những người ngoài ngành, không hiểu về tài chính doanh nghiệp, báo cáo tài chính hay nghiệp vụ kế toán. Cuốn sách được xây dựng từ những định nghĩa căn bản trong việc lập báo cáo doanh nghiệp đến việc lấy ví dụ về một công ty giả định với những giao dịch từ khi thành lập công ty để người đọc dễ hiểu và dễ áp dụng. Điều quan trọng là cuốn sách khiến cho những người không có kiến thức cơ bản về tài chính như mình cảm thấy hứng thú và đọc hết cuốn sách mà không cảm thấy nhàm chán.

[Abhishek · Rating 5 out of 5]

Finance, Biology and neuro sciences are the very definition of the dry subjects in my opinion. One cannot read a line or two on these subjects without stumbling upon some obscure jargon, making them quite inaccessible for the layman.
So when I picked up this book I was first dismayed by its volume as I thought that it was going to be those books which I pick but never finish.
But I was amazed, as the author took us on the journey to prepare all the three statements of a company from scratch. Pages are built up on the previous pages and suddenly you start to see the light. So moving to the good and the bad parts:
Pros:
1. The chapters progress in a story book style, making the material interesting as well as accessible to the general public.
2. The financial statements are build up in a step by step manner as the title suggest. So you understanding picks up one step at a time, giving you the real understanding of the numbers.
3. The financial statements are clearly marked on each page under "Previous value" , "Transaction" & " New Value". This helps in keeping track of the changes. Personally I worked on Microsoft excel while going thru the transactions, which helped me in algebraic functions quickly.
4. The author moves straight to the point, cutting any unnecessary jargon and clutter.
5. The three major financial statements balance sheet, Income or profit and loss statement & cash flow statement are taken simultaneously. This helps the reader to observe where the affect of any particular activity is reflected on all the statements at a single place.
6. The problems are presented as statements basis which an explanations and financial statement updates are provided.

Cons:
1. Its not really a con but the style of the book is not good for just picking up and opening at a random page. This book needs to be finished from first page to the last. So if you are not a financial expert and you just want to know inventory calculation, your jumping in that section will not help much if you never read the previous pages.

2. The author should encourage the reader to write on notebook or work on an excel sheet along with him so that every thing gets imprinted in a reader's mind.

3. The style of book is awkward. The financial statements are presented first and then question and explanations are provided. The reverse format would have been better.

[Adrian · Rating 5 out of 5]

A total must read for anyone that wants to :
- start a business
- get some accounting basics
- invest in the stock market (my case)

I knew there is alot more to company valuation then reading bloomberg news , checking the P/E ratio , ROI and Growth.

This book provides you with the building blocks of starting a business and of course by learning how to build , one learns to evaluate one business worth.

Impressive diagrams , schematics and comments. This book brings you in ~300 pages from zero to hero in thr field of finance , accounting , management and investing.

The author treats the financial statements in depth , taking all items one by one and discussing , explaining the intricate relationships betweeen them.


It is a shame books of financial tycoons such as Buffett/Lynch and all those "startup gurus" get all the media while this hidden gem is barely noticeable.

Masterpiece !

[Hoon Wee · Rating 5 out of 5]

Ever since I studied quant investment, I knew that someday I should do studies how to read and analyze financial statements.

And a few days ago, I picked up this book - not because of the investment purpose, but because I am currently planning my own business and was curious how to use financial statements.

The book has five chapters (at least for the 3rd edition, not sure for previous editions), but at the higher level it can be divided into *three parts*. **The first part** introduces basic terms and knowledge that readers should know before proceeding to the following chapters. **The second part** shows how a company's financial statement is being changed over trade by trade. **The last part** shows how we should use it to establish the decisions with the quantitative analysis. The last part includes some mathematical formulas, but it won't hurt your brain so much (if you're interested in investments, you should be a good friend of math anyway).

The book does a fantastic job explaining all these contents. Also, I like that it touches on a good level of detail about the subject - not too deep to get overwhelmed, nor too shallow for feeling it was a waste of money to buy this book. No wonder it became a bestseller in the financial category on Amazon.

I highly recommend this book, especially if you're a finance newbie who just started to feed your money-brain.

[Archit · Rating 3 out of 5]

1. For a non-finance person, this book will serve well.
2. For a finance professional, it's not very impactful. Instead the following books can be read:

[Peter S · Rating 3 out of 5]

3 stars because its such a boring topic and it could have definitely been done better. However, this book is helpful in a few ways. I now have a clear understanding of..

1. The three financial statements. I understand what they say, how to read them, and the vocabulary that accompanies them.

Income Statement = profitability
Balance sheet = assets, liabilities, and equity
Cash flow statement = cash movements

2. Ratio Analysis

3. The major equations/mechanisms of modeling of finance, including NPV, IRR, ROI. I wish more had been said about Monte Carlo Analysis and Real Option Analysis.

Overall good book to read in an evening to passively learn about financial statements. Probably not good if you want to make ledgers and translate them into balance sheets, income statements, and cash flow statements.

[202 unknown · Rating 3 out of 5]

Tựa Việt: Báo cáo Tài chính - Hướng dẫn từng bước hiểu và lập báo cáo tài chính.

Mình k thấy cái hay của sách với tư cách cựu sv kế toán. Các thuật ngữ được dịch k thống nhất với các thuật ngữ được dùng hiện tại ở VN gây khó khăn. Chuẩn mực kế toán Mỹ có những điểm khác VN. Người dịch mình e là k có hiểu biết về luật pháp và chính trị Mỹ bên cạnh kế toán, nên khúc cuối dịch vài sự kiện liên quan đọc hơi chán, dù chỉ là điểm trừ nhỏ so với tổng thể.

Nên có một ai đó người Việt viết về kế toán VN bán cho độc giả Việt sẽ tốt hơn.

[Ben Donahower · Rating 4 out of 5]

Useful book, limited examples

This was a useful book in understanding several forms and accounting. if I had a challenge it was that it followed a manufacturer, Appleseed partners, so the examples were all related to this business. For continuity sake that was great but it also left me wondering if there were examples in a service business would have been more relevant to me.

[Kissimon István · Rating 5 out of 5]

It's a highly useful book that benefits both beginners and professionals. For beginners, it presents the basics in an understandable and readable manner. Professionals can also find it helpful as a recap. If I had access to such textbooks during my student years, my grades would have improved significantly. Therefore, I recommend this book to anyone interested in accounting.

[Dr. Cock'n Ballz · Rating 3 out of 5]

Fine book. Comprehensive and for beginners. What makes this book special is the author walks you through a few years operation of a business, and shows the statements along the way. Not a page turner... but useful. And a real good summary of broader business topics at the end.

I recommend it.

[Rob Weir · Rating 5 out of 5]

If you find yourself needing to have a conceptual understand of financial statements, what they tell, how they are put together, and how they can be interpreted, it is hard to go wrong with this engaging, approachable book.

[Minh Khue · Rating 5 out of 5]

Một cuốn giáo trình cơ bản về tài chính doanh nghiệp. Cách thức đọc, hiểu các báo cáo tài chính : Bảng cân đối kế toán, báo cáo kết quả hoạt động sản xuất kinh doanh, báo cáo lưu chuyển tiền tệ cùng một số khái niệm khác về tài chính, đầu tư. Sách trình bày dễ hiểu cùng với nhiều ví dụ sinh động.

[Stevewilliams27 · Rating 4 out of 5]

well presented, easily digestible, but very much an intro

[roundface · Rating 5 out of 5]

Great entry level book, very clear and easy to read.

[Mark · Rating 3 out of 5]

Basic and simple to understand.