Financial Accounting Ch 1 Basics

Financial Accounting Ch 1 Basics

1. Balance Sheet

   • Assets
     • expected to provide future economic benefit to the company
       • cash
       • accounts receivable
       • notes receivable
       • inventory
       • prepaid assets
       • plant, property and equipment
       • intangible assets
   • Liabilities
     • accounts payable
       • accrued liabilities
         • unearned or deferred revenue
           • notes payable
             • taxes payable
     • probable future sacrifices of economic resources to non-owners of the organization that are the result of past activities
   • Stockholder's Equity
     • Common stock and Paid-in Capital
       • Retained Earnings
         • Treasury Stock
   • Assets = Liabilities + Stockholder's Equity

2. Income Statement

   • shows the results of a business organization’s operating activities for a period of time.
     • Net loss or Net income
       • this = Rev - exp
     • Revenues
       • Expenses
         • Cost of Rev
           • Selling, general, and adminstrative exp
             • research and development exp
               • depreciation or amortization exp
                 • income taxes exp
       • Sale or Service Rev

3. Statement of Retained Earnings

   • To start, take retained earnings account amount from the balance sheet
     • Next, add net income (or net loss) to this number
       • Then, subtract dividends from that number
         • The result is the change in RE from one year to the next
   • The distribution of net economic resources earned by a business organization to the owners is called dividends
   • this statement shows the reasons that caused retained earnings to increase and decrease from the prior year
   • Retained earnings plus net income minus dividends

4. Statement of Cash Flows

   • shows the reasons a business organization’s cash reported on the balance sheet changed from the prior year.
     • operating activities
       • Cash activities that relate to the day to day profit generating function of a business are classified as operating activities. Activities such as cash sales collections, cash accounts receivable collections, cash purchases of supplies and inventory, cash service payments, cash accounts payable payments and cash salary and wage payments are classified as operating activities.
     • investing activities
       • Cash activities that relate to the purchase or sale of long-term assets are classified as investing activities. Activities such as the cash purchase or sale of property, plant, equipment and investments would be classified as investing activities.
     • financing activities
       • Cash activities that relate to financial capital of a business organization are called financing activities. Activities such as receiving or paying cash to a lender or owner would be classified as financing activities.

5. Information reported to external users

6. These four statements plus notes make up Fin. Acc.

   • Notes are simply pages that clarify and expand on information in the fin. statement