Chapter 1 & 2 Notes.docx

Chapter 1 & 2 Notes.docx - Chapter 1 Financial...

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Chapter 1: Financial Statements FLOW OF ACCOUNTING INFORMATION + WHO USES ACCOUNTING 1. People make decisions Investors and Creditors Government Individuals Not-For-Profit Organizations 2. Business transactions occur 3. Companies report their results FINANCIAL ACCOUNTING: Provides information for people OUTSIDE of the business/organization MANAGEMENT ACCOUNTING: Provides information for people INSIDE of the business/organization THE FINANCIAL STATEMENTS AND THEIR ELEMENTS Question Financial Statement Elements How well did the company perform during the year? INCOME STATEMENT Total Income - Total Expenses = Net Income (or Net Loss) Why did the company’s retained earnings change during the year? STATEMENT OF RETAINED EARNINGS Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings What is the company’s financial position at the end of the year? BALANCE SHEET Assets = Liabilities + Owner’s Equity ( THE ACCOUNTING EQUATION) How much cash did the company generate and spend during the year?
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