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The Financial Statements

The Financial Statements. Presentations for Chapter 2 by Glenn Owen. Key Points. The three basic activities of a business and how they are reflected in the financial statements.

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The Financial Statements

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  1. The Financial Statements Presentations for Chapter 2 by Glenn Owen

  2. Key Points • The three basic activities of a business and how they are reflected in the financial statements. • The balance sheet, income statement, statement of retained earnings, and statement of cash flows and how these financial statements are used.

  3. Fruit Tree Analogy Operating Activities Fruit Investing Activities Trunk/ Branches Financing Activities Roots

  4. The Balance Sheet • Assets • Liabilities • Stockholders’ equity

  5. Assets • Current assets • Cash • Short-term investments • Accounts receivable • Inventory • Prepaid expenses • Long-term investments • Property, plant, and equipment • Intangible assets

  6. Liabilities • Current liabilities • Accounts payable • Wages payable • Interest payable • Short-term notes payable • Current maturities of long-term debt • Deferred revenues • Other payables • Long-term liabilities

  7. Stockholders’ Equity • Contributed capital • Retained earnings

  8. The Income Statement • Operating revenues • Sales • Fees earned • Other revenues • Operating expenses • Cost of goods sold • Wage expense • Rent expense • Selling expense • Depreciation expense • Amortization expense • Other expenses

  9. The Statement of Retained Earnings • Beginning retained earnings balance • Plus: Net income • Less: Dividends • = Ending retained earnings balance

  10. The Statement of Cash Flows • Cash flows from operating activities: • Collections from sales, rent, interest, etc. • Cash paid to suppliers and employees, and for rent, selling activities, interest, and taxes etc. • Cash flow from investing activities: • Proceeds from sale of investment securities, property, etc. • Purchase of investment securities, property, etc. • Cash flow from financing activities: • Proceeds from issuance of notes, debt, sale of equity, etc. • Payments on notes, debt, dividends, etc.

  11. Retained earnings from the Beginning Balance Sheet is included in the Statement of Retained Earnings Cash from the Beginning Balance Sheet is included in the Statement of Cash Flows. Net income from the Income Statement is included in the Statement of Retained Earnings Ending retained earnings from the Statement of Retained Earnings is included in the Ending Balance Sheet. Ending cash from the Statement of Cash Flows is included in the Ending Balance Sheet. Relationships Among the Financial Statements Statement of Cash Flows Beginning Balance Sheet Income Statement Ending Balance Sheet Statement of Retained Earnings

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