Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
2-2
Financial Statements
Transactions
Procedures for sorting, classifying, and presenting (bookkeeping) Selection of alternative methods of reflecting the effects of certain transactions (accounting)
Financial Statements
An entitys financial statements are the end product of a process that starts with transactions between the entity and other organizations and individuals.
2-3
Accounts
Transactions are summarized in accounts.
Cash
Accounts Receivable
Accounts Payable
2-4
Financial Statements
Required Disclosure Financial position at the end of the period Earnings for the period Cash flows during the period Investments by and distributions to owners during the period Financial Statement that Satisfies Requirement Balance Sheet Income Statement Statement of Cash Flows Statement of Changes in Owners' Equity
In addition to the financial statements, the annual report will probably include several accompanying footnotes or explanations of the accounting policies and detailed information about many of the amounts and captions shown on the financial statements.
2-5
Balance Sheet
Assets represent the amount of resources owned by the entity.
Equity is the ownership right of the owner(s) of the entity in the assets that remain after deducting the liabilities.
2-6
Balance Sheet
Current assets are those assets that are likely to be converted into cash or used to benefit the entity within one year.
Main Street Store, Inc. Balance Sheet August 31, 2004
Assets Current Assets Cash Asccounts recievable Merchandise inventory Total current asets Plant and Equipment Equipment Less: Accumulated depreciation Total Assets $ 34,000 80,000 170,000 284,000 40,000 (4,000) $ 320,000 Liabilities and Owners' Equity Current Liabilities Short-term debt $ 20,000 Accounts payable 35,000 Other accrued liabilities 12,000 Total current liabilities $ 67,000 Long-term debt 50,000 Total Liabilities 117,000 Owners' equity Total liabilities and owners' equity 203,000 $ 320,000
Current liabilities are those liabilities that are likely to be paid with cash within one year of the balance sheet date.
2-7
Balance Sheet
Assets
Liabilities
Equity
2-8
Balance Sheet
Definition Cash Cash on hand and in the bank Accounts receivable Amounts due from customers Merchandise inventory Cost of merchandise acquired and not yet sold Equipment Cost of equipment purchased and used in business Accumulated depreciation Portion of the cost of equipment that is estimated to have been used up in the process of operating the business Short-term debt Amounts borrowed that will be repaid within one year of the balance sheet date Accounts payable Amounts due to suppliers Other accrued liabililites Amounts owed to various creditors Long-term debt Amounts borrowed from banks or other creditors that will not be repaid within one year from the balance sheet date Owners' equity Explained in more detail later in this chapter Account
2-9
Income Statement
The income statement shows the profit for the period of time under consideration.
Revenues result from the entitys operating activities (e.g., selling merchandise). Costs and expenses are incurred in generating revenues and operating the entity.
Main Street Store, Inc. Income Statement For the Year Ended August 31, 2004 Net sales Cost of goods sold Gross profit Selling, general, and admin. expenses Income from operations Interest expense Income before taxes Income taxes Net income Net income per share of common stock outstanding $ $ $ $ $ 1,200,000 850,000 350,000 311,000 39,000 9,000 30,000 12,000 18,000
1.80
2-10
Income Statement
The income statement shows the profit for the period of time under consideration.
Gains and losses are also reported on the income statement and result from nonoperating activities, rather than from the day-to-day operating activities that generate revenues and expenses.
Main Street Store, Inc. Income Statement For the Year Ended August 31, 2004 Net sales Cost of goods sold Gross profit Selling, general, and admin. expenses Income from operations Interest expense Income before taxes Income taxes Net income Net income per share of common stock outstanding $ $ $ $ $ 1,200,000 850,000 350,000 311,000 39,000 9,000 30,000 12,000 18,000
1.80
2-11
Income Statement
Captions Net sales Cost of goods sold Gross profit Explanation Amount of sales of merchandise to customers, less the amount of customer returns of merchandise Represents the total cost of merchandise removed from inventory and delivered to customers as a result of sales Difference between net sales and cost of goods sold; Represents the seller's maximum amount of "cushion" from which all other expenses of the business must be deducted before it is possible to have net income Represent the operating expenses of the entity Represents one of the most important measures of the firm's activities Represents the cost of using borrowed funds Shown after all of the other income statement items have been reported because income taxes are a function of the firm's income before taxes A significant item in evaluating the market value of a share of common stock; Often referred to as "earnings per share" or EPS
Selling, general, and administrative expenses Income from operations Interest expense Income taxes
2-12
$ $
$ $
This financial statement shows the detail of owners equity and explains the changes that occurred in the components of owners equity during the year.
2-13
2-14
The purpose of this financial statement is to identify the sources and uses of cash during the year.
2-15
Time-Line Model
8/31/03 Balance Sheet A = L + OE Fiscal 2004 Income Statement for the Year
Revenue - Expenses Net Income
2-16
The arrow indicates that net income affects retained earnings, which is a component of owners equity.
2-17
2-18
2-19
2-20
Owners equity must have increased by $15,000. Since owners equity was $175,000 at the beginning of the year, it must be $190,000 at the end of the year.
2-21
Concepts/Principles
Now
Future
Accounting Entity Every economic entity can be separately identified and accounted for.
Going Concern Concept The presumption that the entity will continue to operate in the futureits not being liquidated.
Unit of Measurement Only transactions denominated in Currency are recorded in the accounting records.
Cost Principle Transactions are recorded at their original cost to the entity as measured in dollars.
2-22
Concepts/Principles
Objectivity The accountants desire to have a given transaction recorded in the same way in all situations.
Accounting Period The period of time selected for reporting results of operations and changes in financial position.
Matching Concept All expenses incurred to generate that periods revenues be deducted from revenues earned.
Accrual Accounting Recognize revenue at the point of sale and recognize expenses when incurred, even though the cash receipt or payment occurs at another time.
2-23
Concepts/Principles
Full Disclosure Circumstances and events that make a difference to financial statement users should be disclosed.
Materiality The increased benefit of increased accuracy should out weigh the cost of achieving the increased accuracy.
Conservatism When in doubt, make judgments and estimates that result in lower profits and asset valuations.
2-24
Financial statements report only quantitative economic data. They do not reflect qualitative economic variables, such as the value of the management team or the employees morale.
2-25
The balance sheet does not report market values or replacement cost of the assets. Many estimates are used, such as warranty costs, depreciation, and pension expense.
2-26
2-27
Questions?