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Lecture

Chapt. 2 - Communicating through Financial Statements

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Department
Accounting
Course
ACC 100
Professor
Else Grech
Semester
Winter

Description
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 Income Statement - 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 business - Balance Sheet - 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 equipm
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