Authors: Erkki K. Laitinen
Addresses: Department of Accounting and Finance, University of Vaasa, P.O. Box 700, 65101 Vaasa, Finland
Abstract: The objective is present an entry-based approach to small business financial statement analysis. This approach is based on a procedure in which financial statements are prepared after each bookkeeping (double) entry. This kind of procedure provides the management in a small firm with an opportunity to control in real time how the annual financial statements (income statement and balance sheet) are formed up from successive bookkeeping entries with the passage of time. The approach can also be used to warn about financial crisis or to direct attention to most important transactions. It is also a useful tool for small business auditors. The procedure is demonstrated by a case study based on an entry-based bookkeeping material from a Finnish micro firm. Probability of bankruptcy is used in this case to warn about financial crisis whereas a balance sheet decomposition (information) measure is employed to reflect the most important bookkeeping entries.
Keywords: auditing; bankruptcy probability; bookkeeping; decomposition measure; financial statement analysis; small firm.
International Journal of Management and Enterprise Development, 2018 Vol.17 No.1, pp.36 - 52
Received: 06 Jan 2017
Accepted: 18 Feb 2017
Published online: 04 Dec 2017 *