Professional Documents
Culture Documents
The Financial Statement
The Financial Statement
Financial Statements
1
Financial Statements
Uses Sources
Income Statement
Expenses Revenues
Balance N.Capital
Sheet
Assets
Liabilities
2
The balance sheet
• It is a “Where do we stand at the end of the period?”
type of report.
• This report is called the statement of financial
Position or, more commonly, the balance sheet.
• This report is prepared at a specific date: The date of
preparation is given in the header, or title, above this financial statement.
• A balance sheet shows two sides of the business, the
assets and sources of assets
The balance sheet
• Assets: On one side of the balance sheet the assets of the
business are listed, which are the economic resources owned
and being used in the business. Some assets have been on the
books only a few weeks or a few months, so their reported
historical values are current. The values for other assets, on
the other hand, are their costs when they were acquired
many years ago.
6
Account Format Balance Sheet
Smart Touch /Sheena Bright
.
8
Any Compa ny
Cla s s ifie d Ba la nce S he e t
.
Ma y 31, 2010
As s e ts
Curre nt as s e ts :
Ca s h $ 4,800
Accounts re ce iva ble
S upplie s
2,500
200
.
Tota l curre nt a s s e ts 7,500
Plant as s e ts :
Furniture 18,000
Le s s : Accumula te d de pre cia tion (2,000) 16,000
Tota l a s s e ts $ 23,500
Liabilitie s
Curre nt liabilitie s :
Accounts pa ya ble 7,200
S a la rie s pa ya ble 100
Une a rne d re ve nue 400
Cash Equipment
Supplies Furniture
McGraw-Hill/Irwin Slide 10
Assets
Economic resources that will benefit the business
in the future. Assets are generally classified into
two main categories:
• Current Assets
• Fixed Assets
11
Operating Cycle
Cas
h
Collections Purchases
Receivables Inventories
Sale
s
Current Assets
• Will be converted to cash, sold, or used up
during less than one accounting period
• Examples:
– Cash and cash equivalents
– Marketable securities
– Accounts receivable & Notes receivables
– inventory
– Prepaid expenses
13
Fixed Assets
• Acquired for use and not for resale
• 3 sub-categories:
– Property, plant & equipment “Tangible assets”
• Land, Building, Furniture, Equipment
– Long-term financial investments
– Intangible assets “Good will”
14
Assets Resources
• Liabilities • Owners’ equity
– Debts payable to outsiders – Owners’ claims to the
– Examples: assets of the business
• Accounts payable – In a corporation,
• Notes payable stockholders’ equity
• Bank loans
15
Liabilities
Amounts owed by
the business to
creditors.
Notes Accounts
Payable Payable
McGraw-Hill/Irwin Slide 16
Liabilities
A debt (something owed)
• Current Liabilities
• Long-term Liabilities
17
Current Liabilities
• Must be paid either with cash or goods &
services within less than one year
• Examples:
– Accounts payable
– Notes payable due within one year
– Salary payable
– Interest payable
– Unearned revenue
18
Long-Term Liabilities
• Are not due within the current year
• Examples:
– Notes payable with due dates over one year
– Bonds
– Long term loans
19
Owner’s Equity
Ownership Profits
McGraw-Hill/Irwin Slide 20
Equity
Owner’s equity (Sole Stockholder’s equity
trader, partnership) (corporation)
Common stock Capital
+ Retained earnings + Retained earnings
+ Net Income + Net Income
- Dividends - withdraws
21
22
Keywords in an account title
Accounts with Receivable in the title are always Assets, they
represent amounts owed to the business by customers and
others.
Accounts with Payable in the title are always Liabilities, they
represent amounts owed by the company to others to be
paid in the future.
Accounts with Prepaid in the title is an Asset, because it
represents amounts paid to others for future benefits, such
as Insurance coverage and property rentals.
Accounts with Unearned in the title are always Liabilities
that represent amounts paid to the company in the past by
others who expect to receive goods ore services from the
company in future.
23
Working Capital
The difference between current assets
and the current liabilities.
A basic measure of a company's ability
to pay its current obligations.
The more working capital a business
has, the less risky it is.
.
25
Operating Cycle
Purchase good and
services
Typical
Operating Cycle
Receive
cash from Pay cash
customers to suppliers
29
Expenses
• Outflows of assets or increasing liabilities in the
course of delivering goods or services to customers
– Cost of goods sold
– Operating expenses:
• Depreciation
• Selling expense
• General and administrative expenses:
• Rent expense
• Utilities expense
– Interest expense
– Income taxe expenses 30
Accrual Basis Accounting
Slide 31
Income Statement Formats
Single-step Multi-step
Groups all revenue Lists several
32
Income Statement Accounts
Revenues are earned when PIZZA AROMA
there is an exchange of a Income Statement
business’s products or For the Month Ended May 31, 2009
services for cash or a promise Revenues
to pay cash. Sales revenue $ 11,000
Total revenue 11,000
Expenses
Expenses are costs incurred to
Supplies expense 4,000
generate revenues.
Wages expense 2,000
Rent expense 2,000
Utilities expense 600
Insurance expense 300
Advertising expense 100
Total expenses 9,000
Net income is the excess of Net income $ 2,000
revenues over expenses.
Slide 33
Multi step Income Statement
.
Multi step Income Statement
Gross profit
Sales Cost of goods sold