Chapter 02

Chapter 02 - BUSI1002KLT, 07/08 2-1 BASIC FINANCIAL...

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Unformatted text preview: BUSI1002KLT, 07/08 2-1 BASIC FINANCIAL STATEMENTS Chapter 2 BUSI1002KLT, 07/08 2-2 Learning Objective LO1 To explain the nature and general purpose of financial statements. BUSI1002KLT, 07/08 2-3 Income Statement Balance Sheet Statement of Cash Flows Introduction to Financial Statements Three primary financial statements. We will use a corporation to describe these statements. BUSI1002KLT, 07/08 2-4 Introduction to Financial Statements Describes where the enterprise stands at a specific date . Income Statement Balance Sheet Statement of Cash Flows BUSI1002KLT, 07/08 2-5 Introduction to Financial Statements Depicts the revenue and expenses for a designated period of time . Income Statement Balance Sheet Statement of Cash Flows BUSI1002KLT, 07/08 2-6 Introduction to Financial Statements Revenues result in positive cash flow. Expenses result in negative cash flow. Either in the past, present, or future. BUSI1002KLT, 07/08 2-7 Introduction to Financial Statements Net income (or net loss) is simply the difference between revenues and expenses. Income Statement Balance Sheet Statement of Cash Flows BUSI1002KLT, 07/08 2-8 Introduction to Financial Statements Depicts the ways cash has changed during a designated period of time . Income Statement Balance Sheet Statement of Cash Flows BUSI1002KLT, 07/08 2-9 Vagabond Travel Agency Balance Sheet December 31, 2007 Assets Liabilities & Owners' Equity Cash 22,500 $ Liabilities: Notes receivable 10,000 Notes payable 41,000 $ Accounts receivable 60,500 Accounts payable 36,000 Supplies 2,000 Salaries payable 3,000 Land 100,000 Total liabilities 80,000 $ Building 90,000 Owners' Equity: Office equipment 15,000 Capital stock 150,000 Retained earnings 70,000 Total 300,000 $ Total 300,000 $ A Starting Point: Statement of Financial Position BUSI1002KLT, 07/08 2-10 Learning Objective LO2 To explain certain accounting principles that are important for an understanding of financial statements and how professional judgment by accountants may affect the application of those principles. BUSI1002KLT, 07/08 2-11 The Concept of the Business Entity Vagabond Travel Agency A business entity is separate from the personal affairs of its owner. BUSI1002KLT, 07/08 2-12 Vagabond Travel Agency Balance Sheet December 31, 2007 Assets Liabilities & Owners' Equity Cash 22,500 $ Liabilities: Notes receivable 10,000 Notes payable 41,000 $ Accounts receivable 60,500 Accounts payable 36,000 Supplies 2,000 Salaries payable 3,000 Land 100,000 Total liabilities 80,000 $ Building 90,000 Owners' Equity: Office equipment 15,000 Capital stock 150,000 Retained earnings 70,000 Total 300,000 $ Total 300,000 $ Assets Assets are economic resources that are owned by the business and are expected to benefit future operations. BUSI1002KLT, 07/08 2-13 Assets Cost Principle Cost Principle Going-Concern Going-Concern Assumption Assumption Objectivity Objectivity Principle Principle Stable-Dollar Stable-Dollar Assumption Assumption These accounting principles support cost as the basis for asset valuation. BUSI1002KLT, 07/08...
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Chapter 02 - BUSI1002KLT, 07/08 2-1 BASIC FINANCIAL...

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