BASIC FINANCIAL STATEMENTS 2

Introduction to Financial Statements Companies prepare interim financial statements and annual financial statements. 2000 X

Introduction to Financial Statements Income Statement Balance Sheet Statement of Cash Flows Three primary financial statements. We will use a corporation to describe these statements.

Introduction to Financial Statements Income Statement Balance Sheet Statement of Cash Flows Describes where the enterprise stands at a specific date.

Introduction to Financial Statements Income Statement Balance Sheet Statement of Cash Flows Depicts the revenue and expenses for a designated period of time.

Introduction to Financial Statements Revenues result in positive cash flow. Expenses result in negative cash flow. Either in the past, present, or future.

Introduction to Financial Statements Income Statement Balance Sheet Statement of Cash Flows Net income (or net loss) is simply the difference between revenues and expenses.

Introduction to Financial Statements Income Statement Balance Sheet Statement of Cash Flows Depicts the ways cash has changed during a designated period of time.

The Annual Report Balance sheet – provides a snapshot of a firm’s financial position at one point in time. Income statement – summarizes a firm’s revenues and expenses over a given period of time. Statement of retained earnings – shows how much of the firm’s earnings were retained, rather than paid out as dividends. Statement of cash flows – reports the impact of a firm’s activities on cash flows over a given period of time.

Assets Assets are economic resources that are owned by the business and are expected to provide positive future cash flows.

Liabilities Liabilities are debts that represent negative future cash flows for the enterprise.

Owners’ Equity Owners’ equity represents the owner’s claim to the assets of the business.

The Accounting Equation Assets = Liabilities + Owners’ Equity $300,000 = $80,000 + $220,000 3

ASSETS Current Assets: Include cash and anything that can be turned into cash in a year, such as inventories. Fixed Assets: Include land, buildings, machinery, trucks with allowance being made for depreciation.

Notes Payable The amount of principal due on a formal written promise to pay. Loans from banks are included in this account.