Introduction to Financial Statements

1) Key Things To Know	6) Hard Practice Test
2) Self Test	7)On Your Test
3) Practice as You Learn	8) Quick Study Sheet
4) Easy Practice Test	9) Common Accounts
5) Medium Practice Test

 

 

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.