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Financial Statements

Financial Statements

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Financial Statements

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  1. Financial Statements Standard financial forms prepared for decision making, analysis, forecasting, and management of a business

  2. Balance Sheet • A “picture” of how the business is doing financially at a particular point in time • Contains three parts: Assets, Liabilities, and Owner’s Equity • Assets must equal liabilities and equity so that it “balances” • The balance sheet equation is Assets = Liabilities + Owner’s Equity

  3. Assets • What the business OWNS • Current assets can be converted into cash within one year such as accounts receivables and inventory • Fixed assets are more permanent items like buildings and equipment

  4. Liabilities • What the business OWES • Current liabilities must be paid within a year like inventory, rent, utilities • Long term liabilities include items that do not mature within a year like bank loans

  5. Owner’s Equity • Also known as Net Worth • Assets minus Liabilities • You want a positive equity (more assets than liabilities) • A negative equity can make it difficult for the business to borrow money

  6. Types of Accounting • Accrual Accounting • Recording all transactions even though payment may not have been received • Recording all expenses even though they may not have been paid • Cash Accounting • Recording only transactions that it has received payment for and only the expenses it has paid

  7. Accrual Accounting • This project is using ACCRUAL accounting because we are recording all transactions even though we have not received payment for some of them and we have not paid some of our bills. • The unpaid amount our customers owe us is the accounts receivable amount on the balance sheet. • The bills our business has not paid are called accounts payable

  8. Balance Sheets Change Because bills are always being paid and customers are also paying, the balance sheet is always changing

  9. Income Statement • Shows if a business is making money or not • Revenues and expenses • Also known as a profit or loss statement

  10. Income Statement • Examine sales, expenses, and income over time • Forecast how well your business might do in the future • Analyze costs and see if you need to cut back • See categories of expenditures you might want to increase or decrease like advertising • Shows payment you have not received and expenses you have not paid

  11. Cash Flow Statement • Shows the liquidity of a business by looking at cash coming in and going out of a business • Liquidity is the ability to be cash • Shows how much money is available to pay your bills

  12. Cash Flow Statement • Cash Receipts • Cash sales • Collected Accounts Receivables • Tax refunds • Funds from bank loans and investors • Cash Disbursements • Paying for cost of goods • Accounts Payable

  13. Cash Flow Statement • Net Cash Flow=Cash Receipts-Cash Disbursements • Should estimate cash flow AND keep an actual cash flow record