o EXAMPLE Sierra Company Income statement is the first statement to be prepared

O example sierra company income statement is the

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oEXAMPLE – Sierra Company – Income statementis the first statement to be prepared. It lists revenues expense and as a result net income or net loss for a period of time. List revenues and then expenses, totals and list net income.Net income is required when you prepare a retained earnings statement.Users of financial statements specifically income statement. Investors forecast company’s future profitability.Creditors evaluate the income statement to determine if the company can pay interest expense.oRetained Earnings Statement– 2ndstatement, earnings and net income profit terms are used interchangeably. If profitable at the end of each period the company decides how much dividend to distribute to the stockholders. Shows months and courses of changes to returned earnings for period of time. Prepared for same time period as the income statement. First line is the beginning of returned earnings for the period of time. Then adds net income, less dividend with end of time period, returned earnings.oHow users use this statement – used to understand how the company distribute dividendsoBalance Sheet – snapshot of a company’s financial position for a specific point in time. List assets and total claims to the company’s assets (liabilities, total equities)Listed on Balance Sheet – First assets are listed and totaled, then liabilities are listed and totaled. Then Stockholders Equity is listed with common stocks and returned to earnings from the income statement (last line). Add these together Helpful Hint:The financial statement heading identifies the company, they type of statement, and the time period covered. Sometimes another line indicates the unit of measure i.e. “in thousands” or “in millions”
Users/why – creditors use balance sheet to determine company’s solvency and determine if comp has enough assets to repay its debts. Compare level of liabilities with level of assets to see if the company is balanced. oStatement of Cash Flows– primary goal is to provide cash receipts and cash payments for the company. Answers questions like, where did the cash come from during this period? How was the cash used during this period? What was the change in the cash balance during the period?Prepared for same time frame as the income statement and balance statement.Operating Cash receipts increase the cash balanceCash payments decrease the cash balanceInvesting – decrease the cashFinancing – increase the cashNet Cash Increase or DecreaseCash at the end of the periodState the basic accounting equationand describe its relationship to the balance sheet.oAssets = Liabilities + Stakeholders (Equity)oA company needs funds to acquire assets, creditors or stockholders. Assets are purchased with stockholders/creditors equity
Chapter 6 – Accounting TheoryAccounting Concepts and Principles (Conceptual Framework)Identify and discuss the underlying assumptions or concepts of accounting.

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