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Acct 800 Textbook - Acct 800 Textbook Chapter 1 Financial...

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Acct 800 Textbook Chapter 1- Financial Statements and Business Decisions External Decision makers- Ex. Creditors, investors, suppliers and customers Internal Decision makers- Managers 4 basic financial statements: Overview 1. Balance Sheet- is to report the financial position (amount of assets, liabilities and stockholders’ equity) of an accounting entity at a particular point in time - Assets- Cash, Accounts Receivable, Inventory, Land, Plant and Equipment, etc - Liabilities- Account payable, Notes Payable - Stockholder’s equity- Contributed Capital, Retained earnings Basic Accounting equation shows a company’s financial position (the economic resources that a the company owns and the sources of financing for those resources) - A=L+SE Assets- Economic Resources owned by the company Liabilities- Debt or obligations of a company Stockholders’ equity- indicates the amount of financing provided by owners of the business and earnings 2. Income Statement- reports the accountant’s primary measure of performance of a business, revenues less expenses during the accounting period - Balance sheet is up to a certain date, Income statement is for a period of time (accounting period is the time covered by the financial statements) - Revenues-Expenses= Net Income Revenues-sale of goods or services to a customer(whether or not they have been paid for) Expenses- represent the dollar amount of resources the entity used to earn revenues during the period (Expenses reported in one accounting period can be paid for in another) Net Income/Net Earnings- is the excess of total revenues over total expenses 3. Statement of Retained Earnings- reports the way that net income and the distribution of dividends affected the company’s financial position during the accounting period -Covers a specified period of time - Beginning Retained Earnings + Net Income- Dividends= Ending retained earnings 4. Statement of Cash Flows- reports inflows and outflows of cash during the accounting period in the categories of operating, investing and financing - Specified period of time +/-Cash flows from operating activities +/-Cash flows from investing activities +/-Cash flows from financing activities = Change in cash - Cash flows from operating activities- cash flows that are directly related to earning income - CF from investing- include CF related to the acquisition or sale of the company’s productive assets - CF from Financing- are directly related to the financing of the enterprise itself Relationships among the statements 1. Net Income from the income statement results in an increase in ending retained earnings on
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the statements of retained earnings 2. Ending retained earnings from the statement of RE is one of the two components of stockholders equity on the balance sheet 3. The change in cash on the CF statement added to the beginning of year balance in cash equals the end of year balance in cash on the balance sheet -Notes- failure to read the notes to the financial statements will result in an incomplete picture of the company’s financial health
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