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Understanding Financial Statements: A Comprehensive Guide

Learn how financial statements are prepared and the key components: Statement of Cash Flows, Income Statement, Statement of Retained Earnings, and Balance Sheet. Discover the purpose and structure of each statement, including examples and definitions of common accounts.

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Understanding Financial Statements: A Comprehensive Guide

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  1. Financial Puzzle FINANCIAL STATEMENTS By PresenterMedia.com

  2. Financial Puzzle FINANCIAL STATEMENTS By PresenterMedia.com

  3. How are Financial Statements prepared? 1 2 STATEMENT OF CASH FLOWS - Indicates cash inflows and outflows from operating, investing, and financing activities for a period of time (Cash basis). INCOME STATEMENT - Indicates revenues less expenses = net income for a period of time STATEMENT OF RETAINED EARNINGS - Indicates changes in Owner’s Equity for a period of time BALANCE SHEET - Indicates the ending balances of assets, liabilities, and owners’ equity at a point in time 3 4

  4. Income Statement - Indicates revenues less expenses = net income for a period of time • Examples of accounts: • Revenues: • Sales, Fees • Expenses: • Cost of Goods Sold, • Salaries, Rent, Utilities, • Depreciation, Interest

  5. Statement of Retained Earnings - Indicates changes in Owner’s Equity for a period of time • Beginning Balance: (if any) • Add: Net income or • Subtract : Net loss • Add: Owner Contributions • Less: Dividends • = Ending Balance

  6. Statement of Cash flows Indicates cash inflows and outflows from operating, investing, and financing activities for a period of time (Cash basis). 3 Categories: • Operating • Investing • Financing

  7. Statement of Cash flows Indicates cash inflows and outflows from operating, investing, and financing activities for a period of time (Cash basis). • Operating – Cash in and out from operating activities • Cash received from customers • Cash paid to employees • Cash paid to suppliers • Cash paid for rent • Cash paid for utilities

  8. Statement of Cash flows Indicates cash inflows and outflows from operating, investing, and financing activities for a period of time (Cash basis). Investing activities Financing ACTIVITIES . Purchase and sale of long-term assets • Examples: • Cash paid for Car • Cash paid for Computer • Cash received for Car • Cash received for Computer Obtaining cash or other resources to pay for investments in long term assets. • Examples: • Cash received from borrowing a loan • Cash paid to payoff loan • Cash paid to owners (shareholders) dividends • Cash received from owners (investing in the business)

  9. Balance Sheet Indicates the ending balances of assets, liabilities, and owners’ equity at a point in time • Assets = Liabilities + Owner’s Equity Assets: • Cash, Accounts Receivable, Supplies, • Prepaid Assets (Insurance), Inventory, • Car, Accumulated Depreciation – Car Liabilities: • Accounts Payable, Interest Payable, Utilities Payable, • Notes Payable Owner’s Equity: • Capital, Withdrawals/Drawing YOU HAVE YOU OWE YOU OWN

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