Basic Financial Statements
Balance Sheet
Income Statement
Statement of Retained Earnings
Statements of Cash Flows
Assets = Liabilities + Equity
Assets = owns
Liabilities = owes
Equity = proportion of assets owned outright (no debt)
Assets - Liabilities = Equity
current assets
long-term investments
fixed assets
intangibles
cash + assets to be converted into cash in a year or less from the balance sheet date
includes: cash, accounts recievable, inventory, prepaid items
stocks + bonds
PPE: Property, Plant, and Equipment
can't touch them: patents, trademarks, etc.
current: debts expected to become due within one year of balance sheet date
long term: until after one year
accounts payable, wages payable, utilities payable
notes and bonds payable
stockholder's equity
common stock
retained earnings
total profits - (losses + amounts paid to stockholders over lifetime of company)
Order: assets in order of liquidity, PPE, long term, intangible, total of company assets, liabilities, and stockholders equity
Revenues - Expenses = Net Income
3 types of revenue: service, abritrage, and manaufacturing
recording revenue is called the "accrual method of accounting". When the revenue is recorded when only cash is received it is called "cash basis of accounting"
small companies use cash based while all public and many private use accrual method
Expenses are the amount used to generate revenue ie. payroll, insurance, taxes, etc.
written on income statement as they are incurred or used up
when expenses are shown as deductions from revenue this is known as "matching"
differs from balance sheet: over a period of time rather than certain date, next period starting figures are zero
Beginning retained earnings + Net income (or minus net loss) - Divedends
=
Ending retained earnings
total ending retained eearning + common stock account = stockholders equity section of balance sheet
Statements should be prepared in order of income statement (net income), statement of retained earinings (ending retained earnings), and then balance sheet
not tied to other statements so can be prepared at any time
usually done at the same time as other statements
cash beginning +/- operating cash flows +/- financing cash flows +/- investing cash flows = cash end
if cash end = amount on the end of balance sheet then its correct
ending cash amounts fall sway at end of period
DIVEDENDS are never on income statement they are NOT an expense
everything is a period of time other than balance sheets