This preview shows page 1. Sign up to view the full content.
Unformatted text preview: causes a gain or loss for
the company. Also reported after income from continuing operations. Common Size Income Statement: Shows all income statement lines as a percentage of net sales.
Analysts use this calculation when evaluating a company from year to year. (See Exhibit 5.6, p. 246)
Statement of Owners (Stockholders) Equity: Beginning balance + Net Income - Withdrawals = Ending
balance. Covered more in chapter 11. Statement of Cash Flows: Illustrates net change in cash for the period
Includes three sections:
• Cash flows from operating activities: Cash flows associated with earning income
• Cash flows from investing activities: Cash flows associated with purchase or sale of productive
assets and investments
• Cash flows from financing activities: Cash flows associated with the financing of debt and equity
Two methods can be used to determine cash flows: Direct vs. indirect. Covered in Chapter 13.
Notes to the financial statements: Required by GAAP to provide important information, additional
details, or explanations to help clarify the financial statements. Includes things such as:
• Descriptions of key accounting rules followed by the company
• Additional detail to support reported numbers in the financial statements
• Relevant financial information not disclosed within the financial statements 31 Closing Entries
At the end of an accounting period (typically one year) a company will "close" its books. The purpose of
this is to:
1. Transfer net income or loss (revenues and expenses) into the equity account.
2. Establish a zero balance for revenue and expense accounts, to start accumulating information
for the next accounting period
Note: Income statement account balances (called nominal accounts) are t...
View Full Document