Chapter 1 – Part II Financial Statements

Balance sheet Economic resources and claims against those resources Assets – economic resources that are expected to benefit future operations Assets – economic resources that are expected to benefit future operations Liabilities – business’s present obligations Liabilities – business’s present obligations Owners’ equity – represent the claims by the owners of a business to the assets Owners’ equity – represent the claims by the owners of a business to the assets Contributed capital – Contributed capital – Retained earnings – Retained earnings – Dividends Dividends

Accounting Equation Assets = Liabilities + Owner’s Equity Assets – Liabilities = Owner’s Equity

Income Statement Accounts Revenues – result from selling goods or services; increase to retained earnings Revenues – result from selling goods or services; increase to retained earnings Expenses – represent the costs of doing business (payroll, supplies, COGS, interest); decrease to retained earnings Expenses – represent the costs of doing business (payroll, supplies, COGS, interest); decrease to retained earnings Net Income – revenues > expenses Net Income – revenues > expenses Net Loss – expenses > revenues Net Loss – expenses > revenues

Financial Statements Financial Statements Balance Sheet – shows financial position as a certain date Balance Sheet – shows financial position as a certain date Income Statement – measures the business’s success or failure for a period of time Income Statement – measures the business’s success or failure for a period of time Statement of Retained Earnings – shows the changes in Retained Earnings for the period Statement of Retained Earnings – shows the changes in Retained Earnings for the period Cash Flow – shows the business cash inflows/outflows or the net increase or decrease in cash during the period Cash Flow – shows the business cash inflows/outflows or the net increase or decrease in cash during the period

GAAP Generally Accepted Accounting Principles (GAAP) – are the set of conventions, rules, and procedures that constitute acceptable accounting practice at a given time. GAAP changes continually due to improve practices, government regulations, or changes in business conditions

Certified Public Accountants (CPA’s) State licensed professional accountants that are hired to audit (examine) financial statements to ensure the quality of the statements and report on whether the financial statements “present fairly, in all material respects” and are “in conformity with generally accepted accounting principles”

Blinn College Audit Opinion Letter In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of the College as of August 31, 2004 and 2003, and the changes in financial position and cash flows for the years ended 2004 and 2003 in conformity with accounting principles generally accepted in the United States of America.

Accounting Authoritative Bodies Financial Accounting Standards Board (FASB) set standards and GAAP for public companies Financial Accounting Standards Board (FASB) set standards and GAAP for public companies Governmental Accounting Standards Board (GASB) set standards and GAAP for state and local governments Governmental Accounting Standards Board (GASB) set standards and GAAP for state and local governments International Accounting Standards Board (IASB) responsible for developing worldwide accounting standards International Accounting Standards Board (IASB) responsible for developing worldwide accounting standards IRS – sets tax rules/regulations IRS – sets tax rules/regulations

Annual Reports See pages in text