Hpa 211 Lesson 3.docx - Hpa 211 Lesson 3 Introduction and...

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Hpa 211 Lesson 3 Introduction and Objectives Last week, we explored the income statement. We reviewed sources of revenues and expenses and the presentation of the difference as net income (for-profit) or “excess of revenues over expenses” (not-for-profit). The income statement presents the results of an organization’s financial performance during a period of time – month, quarter, year. In addition to measuring how an organization has performed, it’s important to review the financial position of the organization. Every organization has assets that it uses to earn revenue. Every organization has debts and net worth. The major difference between the income statement and the balance sheet is in the time perspective. The income statement measures resource use over time. The balance sheet takes a “snap shot” or “picture” of the financial condition as of a specific date. Organizations need both types of financial statements to satisfy regulatory reporting requirements, satisfy the information needs of stakeholders, and assess how well it is doing. The cash flow statement complements the income statement and balance sheet. It’s the focus of the statement that makes is so vital – cash flow. In the end, it’s cash flow that sustains the operations of the organization and finances its future. By the end of this lesson, you should be able to: Define the key elements of the balance – assets, liabilities, and net worth. Explain the types of assets, liabilities and equity on the balance sheet: o Current assets – cash, accounts receivable, supplies, inventory, prepaid expenses o Non-current assets – gross property, plant, and equipment, accumulated depreciation, investments o Current liabilities – accounts payable, notes payable, salaries payable
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o Non-current liabilities – Bonds payable o Net Assets Explore the major sections of the cash flow statement – operating, investing, and financing activities. Identify different types of financial instruments for cash-equivalent investments and debt financing - Treasury bills, commercial paper, debentures, and bonds. Discuss the consequences of economic conditions for revenue projections, cash flow receipts, and risk of solvency: o inflation o recession and unemployment Balance Sheet – The Organizational “Financial Snapshot" When you applied for college, you probably completed a financial aid application that listed your assets, liabilities, and net worth. You listed items in your possession called assets and tallied the total dollar value of your assets like cash savings, savings bonds, and fair market value of your house, land, vehicle, or business. Then you listed your debts or liabilities like credit card balance, money owed for your car or previous loans, mortgage balance, etc. You subtracted the total liabilities from your total assets to find your net worth. It was a “picture” of your financial condition at a specific date. The title of the section on the application may have been “Statement of Personal Net Worth.” The amount of net worth was included in a decision about your
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