Professional Documents
Culture Documents
2 BASIC FINANCIAL
STATEMENTS
2000
X
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2002
Introduction to Financial Statements
Balance Sheet
Describes
where the
Income Statement enterprise
stands at a
Statement of Cash Flows
specific date.
Balance Sheet
Income Statement
Depicts the
revenue and
Statement of Cash Flows expenses for a
designated
period of time.
Revenues Expenses
result in result in
positive negative
cash flow. cash flow.
Balance Sheet
Income Statement
Net income (or
net loss) is
Statement of Cash Flows simply the
difference
between
revenues and
expenses.
Balance Sheet
Income Statement
A business
entity is
Vagabond separate from
Travel the personal
Agency
affairs of its
owner.
Cost Principle
These accounting
Stable-Dollar principles support Going-Concern
Assumption cost as the basis Assumption
for asset valuation.
Objectivity
Principle
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2002
Liabilities
Vagabond Travel Agency
Balance Sheet
December 31, 2002
Assets Liabilities & Owners' Equity
CashLiabilities are $ 22,500 Liabilities:
Notes receivable 10,000 Notes payable $ 41,000
debts that
Accounts receivable 60,500 Accounts payable 36,000
represent negative
Supplies 2,000 Salaries payable 3,000
Land 100,000 Total liabilities $ 80,000
future cash flows
Building 90,000 Owners' Equity:
Office equipment 15,000 Capital stock 150,000
for the enterprise. Retained earnings 70,000
Total $ 300,000 Total $ 300,000
•Owners’ •Payments
Investments to Owners
•Business •Business
Earnings Losses
Beginning End of
of period Time period
Balance Balance
Sheet Sheet
Income Statement
Statement of Cash Flows
Sole
Partnership Corporation
Proprietorship
Partners' equity
Jill Jones, capital $ 4,000
Partnership
Bill Jones, capital 4,000
Total partners' equity $ 8,000
Owners' equity
Capital stock $ 7,000
Corporation
Retained earnings 1,000
Total stockholders' equity $ 8,000
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2002
The Use of Financial Statements by
Outsiders
Two concerns:
Creditors Solvency
Profitability
Investors
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2002
The Need for Adequate Disclosure