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Financial Statements: Balance Sheets and Income Statements in Accounting

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shaman
0 diapositives · 144 Views · Jul 06, 2014

BSAD 221 Introductory Financial Accounting by Donna Gunn, CA, explores the foundational concepts of financial accounting, focusing on balance sheets and income statements. Catering to students and aspiring professionals, the course highlights the importance of financial statements in conveying essential financial information to stakeholders. By understanding these statements, learners will gain insight into the financial health of a business and learn why these documents are crucial for external communication and decision-making.

#financial accounting #balance sheet #income statement #stakeholders #financial statements #business communication #financial information #decisionmaking
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Financial Statements: Balance Sheets and Income Statements in Accounting
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  1. BSAD 221Introductory Financial AccountingDonna Gunn, CA
  2. Balance Sheet Income Statement Stakeholders Why do we have financial statements? Financial statements are the primary means of communicating financial information to parties outside the business organization.
  3. 3. Businesses report their results. 2. Business transactions occur. 1. People make decisions. The Flow of Accounting Information 1 -
  4. Financial Accounting System (preparation of four basic financial statements). Managerial Accounting System (preparation of detailed plans, forecasts and reports). External Decision Makers (investors, creditors, suppliers, customers, etc.). Internal Decision Makers (managers throughout the organization). Accounting System
  5. Income Statement Accounts vs. Balance Sheet Balance Sheet Income Statement Revenues Value of the goods sold or services provided Expenses Value of the items used to create revenues Net Income : Revenues – Expenses Assets What a company has Liabilities What a company owes Equity Shareholder Investments
  6. Balance Sheet Assets Economic resources controlled by the entity as a result of past transactions from which future economic benefits may be obtained. Liabilities Debts or obligations of the entity that result from past transactions. Shareholder’s Equity Amount of financing provided by owners of the corporation and from earnings.
  7. Retained earnings Contributed capital For a corporation, shareholders’ equity is divided into two main categories. Balance Sheet – Shareholders’ Equity the amount invested in the corporation by its owners. the amount earned by income-producing activities and kept for use in the business 1 -
  8. Balance Sheet Basic Accounting Equation Assets = Liabilities + Shareholders’ Equity Sources of Financing Liabilities – from creditors Bank loans Accounts payable Equity – from shareholders
  9. Balance Sheet 1. Name of entity 2. Title of statement 3. Specific date (financial snapshot at a specific point in time) 4. Unit measure (millions of dollars)
  10. Income Statement Accounts vs. Balance Sheet Balance Sheet Income Statement Revenues Value of the goods sold or services provided Expenses Value of the items used to create revenues Net Income : Revenues – Expenses Assets What a company has Liabilities What a company owes Equity Shareholder Investments
  11. Income Statement Revenues Earnings from the sale of goods or services. Revenue is recognized in the period in which goods and services are sold, not necessarily the period in which cash is received. Expenses Expenses are the dollar amount of resources used up by the entity to earn revenues during a period. An expense is recognized in the period in which goods and services are used, not necessarily the period in which cash is paid.
  12. $1,000 sale made on May 25. Cash from sale collected on June 10. X X May 2011 June 2011 Income Statement When is the revenue earned?
  13. $1,000 revenue recognized in May $1,000 sale made on May 25. Cash from sale collected on June 10. X X X May 2011 May 2011 June 2011 June 2011 Income Statement When will the revenue from this transaction be recognized?
  14. Paid $75 cash on May 11 for newspaper ad. Ad appears on June 8. X X May 2011 June 2011 Income Statement When will the expense for this transaction be recognized?
  15. Paid $75 cash on May 11 for newspaper ad. Advertising expense recognized in June. Ad appears on June 8. X X X May 2011 May 2011 June 2011 June 2011 Income Statement When will the expense for this transaction be recognized?
  16. Income Statement 1. Name of entity 2. Title of statement 3. Specific date (Unlike the balance sheet, this statement covers a specified period of time.) 4. Unit measure (in millions of dollars)
  17. Statement of Retained Earnings Income of the corporation Dividends Retained by the corporation Shareholders Retained Earnings
  18. Statement of Retained Earnings 1. Name of entity 2. Title of statement 3. Specific date (like the income statement, this statement covers a specified period of time.) 4. Unit measure (in millions of dollars)
  19. Cash Flow Statement The cash flow statement reports the company’s cash inflows and outflows from operating, investing, and financing activities. Income is usually not equal to the change in cash for the period.
  20. Cash Flow Statement 1. Name of entity 2. Title of statement 3. Specific date (like the income statement and statement of retained earnings, this statement covers a specified period of time.) 4. Unit measure (in millions of dollars)
  21. Notes Notes provide supplemental information about the financial condition of a company. Three types . . . Describe accounting rules applied. Present additional detail about an item on the financial statements. Provide additional information about an item not on the financial statements.
  22. Cash Flow Statement: Reports cash balance from balance sheet Statement of Retained Earnings: Adds net income to opening retained earnings Balance Sheet: Reports retained earnings Income Statement : Provides Net Income Relationships Among the Financial Statements
  23. The rules that govern accounting are called GAAP (generally accepted accounting principles). Accountants follow professional guidelines. How Accounting Standards Are Set
  24. CICA Handbook: official source of GAAP; sanctioned by federal and provincial governments and the Canadian Securities Administrators Accounting Standards Board (AcSB) Public Sector Accounting Standards Board Emerging Issues Committee (EIC) International Accounting Standards Board (IASB) GAAP 1 -
  25. As commerce becomes more global and accounting more complex, the existence of different GAAP in countries made comparisons between companies almost impossible. As a result, the International Accounting Standards Board (IASB) was set up in 2001 to issue International Financial Reporting Standards (IFRS). These are being adopted in Canada (and around the world) as generally accepted accounting principles. International Financial Reporting Standards (IFRS) 1st year for reporting under IFRS-based standards will be 2011 1 -
  26. Conceptual Framework Financial Reporting Standards Faithful Representation Timeliness Materiality Verifiability Comparability Understandability Cost Information must be useful for decision makers Relevance
  27. Entity assumption Going concern assumption Cost assumption Stable-monetary-unit assumption Accounting Assumptions
  28. Entity Assumption Separate entity: Transactions of the business entity are separate from transactions of owners.
  29. The Going Concern Assumption Going-concern (Continuity): The entity is expected to continue its operations in the near future.
  30. The Cost Assumption Cost Assumption: Assets and services acquired should be recorded at their actual (historical) cost
  31. The Stable-Monetary-Unit Assumption Stable-Monetary-Unit : The dollar’s purchasing power is relatively stable
  32. Accounting Designations Chartered Accountant = CA Certified General Accountant = CGA Certified Management Accountant = CMA Certified Public Accountant = CPA* (* in USA only)
  33. Ethics, Reputation, and Legal Liability In Canada all Accounting Institutes require that all members adhere to a professional code of ethics.