Financial Statements

Michael P Griffin

• Publisher: QuickStudy Reference Guides
• Year: 2018
• ISBN:
  9781423237310
• Topic: Betriebswirtschaft
• Subtopic: Finanzbuchhaltung

Essential coverage of financial statement preparation and the reading of those statements including examples and various forms of business, whether governmental, nonprofit or even personal. For students of business in or out of school, this precise targeted coverage ensures easy access to the tool that is the backbone of any successful business.
Topics covered include:

• Financial Statement Preparation
• Balance Sheet
• Statement of Cash Flows
• Methods for Operating Cash Flows
• Comprehensive Income
• Statement of Retained Earnings
• Statement of Changes in Equity
• Accompany Notes to Financial Statements
• Corporate Annual Reports & SEC Reporting
• Nonprofit Financial Statements
• Governmental Financial Statements
• Personal Financial Statements

Financial Statement Preparation

The accounting cycle ends with the preparation of financial statements

• Information from the general ledger is used to prepare the financial statements
• An accountant’s worksheet is used to summarize account balances from the general ledger
  • Ten-column worksheet with general ledger account titles in the first column followed by ten columns of amounts
  • One debit and one credit column for each of the following:
    • Trial Balance: Contains each account’s unadjusted balance
    • Adjustments: Contains adjusting entries
    • Adjusted Trial Balance: Contains the combination of the unadjusted balance and adjusting entries
    • Income Statement: Contains the adjusted balances for the revenue, expense, gain, and loss accounts
    • Balance Sheet: Contains the adjusted balances for the asset, liability, and owner’s equity accounts
• Prepare an income statement
  • First financial statement prepared
• Prepare the statement of retained earnings
  • Net income or loss has to be calculated before the statement of retained earnings can be prepared
  • The statement of retained earnings shows the amount of profit retained by the company
• Prepare the balance sheet
• Prepare the statement of cash flows
  • Prepared last as it takes information from previous financial statements

Statement of Income

• Also called the income statement; shows the:
  • Name of the entity (name of company or corporation)
  • Name of the statement (statement of income or income statement)
  • Span of time covered by the report (i.e., for the year ended December 31, 20XX)
• Reveals how much revenue the company earned over a specific time period (usually for a year or some portion of a year)
• Shows the costs and expenses associated with earning that revenue (called the matching principle)
• Bottom line of the statement shows the company’s net income or losses.
  • Net income or net loss shows how much the company earned or lost over the period
  • In the case of a corporation, also shows Earnings Per Share (EPS)
  • EPS is how much money shareholders would receive if the company decided to distribute all of the net earnings for the period (in the form of dividends)
• Shows the results of operations
  • Net Income or (Net Loss) = Revenues − Expenses + Gains − Losses
  • Revenues and expenses are the result of the company’s major activities
  • Gains and losses are from other activities
  • Income or loss from discontinued operations and from extraordinary items are shown separately from income or loss from continuing operations
    • A discontinued operation is a component of an entity that has been disposed of or is classified on the balance sheet as held for sale
    • Discontinued operations and cash flows either are or will be eliminated from the entity’s operations
    • An extraordinary item is both unusual and infrequent
    • Extraordinary items happen infrequently but have a major (material) impact on the current year’s operations
    • Items are reported net of income tax

Preparing an Income Statement

• Always start with sales (revenues)
• Deduct cost of goods sold (also called cost of sales) to arrive at gross profit
• Deduct operating expenses
  • Expenses that go toward supporting a company’s operations for a given per...