Intro to Financial Statements

Introduction to Financial Statements

Quick Study Sheet

Financial Statements:

Balance Sheet:

Shows assets and liabilities and ownership equity on a specific date.    

Income Statement:

Shows revenues and expenses, gains and losses, during a period of time

Statement of O.E.:

Shows the activity of owners – receipt of funds and dividends paid.
Shows the earnings of the business that go to the shareholders

C F Statement:

Shows the source of cash and what the cash was used for this period

What does each financial statement really tell you about the business

Balance Sheet:

What the company has and what they owe on this date

Income Statement:

How much the company earned during this period of time

Owner’s Equity:

What occurred that impacted the owners of the company 

Cash Flows:

Cash generated from day to day operations, use for, additional cash from?

“Retained Earnings” is the amount of cumulative profits and losses kept in the company 
Beginning R.E. + Net Income – Dividends Paid = Ending R. E. put on the balance sheet

The cash flow statement has 3 separate sections:

Operating Activities:

directly related to earning income, changes in current assets and current liabilities

Investing Activities:

cash flows related to buying and selling long term assets

Financing Activites:

cash flows related to borrowing and repaying L/T debt, to / from owners

“Elements” that are reported on the financial statements

Asset:

The company’s economic resource used to operate the business –  company OWNS

1) Probable future economic benefit
2) Owned or controlled by the business
3) Resulting from a past transaction, something that has already occurred

Liability:

The company’s debts and obligations. What the company OWES

1)  Probable use of a future economic benefit (an asset)
2) Owed
3) Resulting from a past transaction. Give up an asset to pay what is owed

Stockholder’s Equity:

Earnings and financing provided by the owners   (Assets – Liabilities)

Revenues:

Earned from providing goods or services in exchange for an asset

Expenses:

Using an asset of the company to provide goods or services

Important:

Revenues and Expenses do not occur when the cash is received or paid

The Accounting Equation:

Must always stay in balance

Assets  = Liabilities  +  O.E.

Generally Accepted Accounting Principles – GAAP:

Guidelines established by various standard setting groups in consultation with accounting professionals

FASB     IASB      SEC

Footnotes:

Additional information provided after the financial statements

Auditor’s Report:

A professional accountant examines the company’s financial statements and gives a report that determines if the statements are fairly stated in accordance with GAAP.