Intro to Financial Statements

Quick Study Sheet

Introduction to Accounting

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


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


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)


Earned from providing goods or services in exchange for an asset


Using an asset of the company to provide goods or services


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


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.