Chapter 2 – Communicating through financial statements
There are four statements
1. Income Statement
2. Statement of changes in equity
3. Balance sheet
4. Statement of cash flows
- report on performance over a period of time
- Reports revenues earned less expenses incurred by a business
- A net income, or profit, means that revenues exceeds expenses. Net loss
means expenses exceeds revenues.
- Revenues are inflows of assets such as cash in exchange for products and
services provided to customers. E.g. sales, interest earned, consulting
revenue, and fees earned.
- Examples of expenses are: wages expense, insurance expense, rent expense,
utilities expense Statement of changes in equity
- reports on changes in equity over the reporting period
- done by adjusting beginning equity for owner investments less owner
withdrawls and net loss plus net income.
- Owner investments occur when the owner transfers personal assets, such as
cash and equipment, into the business.
- Owner withdrawls, or drawings, are a distribution of net income to the
owner and occur when the owner takes cash or other assets from the
- Reports on the financial position at a point in time
- Lists assets, liabilities, and equity.
- Amounts measures are as of the close of business on the balance sheet date
- Assets are the properties or economic resources owned by a business that
provide future benefits such as cash, accounts receivable, supplies, and