1.01 Generally Accepted Accounting Principles – Financial Statements GAAP PowerPoint #4

What are Financial Statements? A formal record of the financial activities of a business Includes four basic financial statements: Balance Sheet (Statement of Financial Position) Income Statement (Statement of Comprehensive Income) Statement of Cash Flows Statement of Changes in Equity http://en.wikipedia.org/wiki/Financial_statements

Balance Sheet Reports a company’s financial position/condition at a given point in time Reports on: Assets Liabilities and Equity Details about cash in bank, amounts owed to creditors, and value of company’s assets.

Income Statement Reports on a company’s income and expenses over a given period of time Reports on Revenue (income) Expenses Shows a company’s profit or loss over a given period of time

Statement of Cash Flows Reports on a company’s cash flow activities into and out of the business from: Operating Activities Investing Activities and Financing Activities Shows how changes in the balance sheet and income statement affect cash and cash equivalents

Statement of Equity Reports the changes in the company’s equity throughout the reporting period Reports profit or loss from the company, dividends paid, and other items that are debited/credited to retained earnings

Questions for Understanding/Discussion Explain the purpose of the Balance Sheet. Explain the purpose of the Income Statement. Explain the purpose of the Statement of Equity. Explain the purpose of the Statement of Cash Flows.