Professional Documents
Culture Documents
Introduction to Financial
Statements
Chapter 1
• Sole proprietorship
• Partnership
• Corporation
Sole Proprietorship
• Financing
• Investing
• Operating
Financing Activities
• Borrowing creates liabilities
– Bank loans
– Debt securities
– Goods on credit or payables
From
Retained
Earnings
Statement
Statement of Cash Flows
• Provides information about cash
receipts and cash payments
• Summarizes for period: month, quarter,
or year.
• Cash effects of operating, investing,
and financing activities.
Statement of Cash Flows
• Where did the cash come from?
• How was cash used during the period?
• What was the change in the cash
balance during the period?
• You can’t survive without cash!
Statement of Cash Flows
Agrees
with
Balance
Sheet
#5 Explain the Meaning of
Assets, Liabilities, and
Stockholders’ Equity.
Assets =
Liabilities + Stockholders’ Equity
#
6 Components that Supplement
the Financial Statements in an
Annual Report
• Auditor’s report
Management’s Discussion and
Analysis covers three items:
1. Liquidity
2. Capital resources
3. Results of operations
Management’s Discussion and
Analysis
Notes to Financial Statements
• Explanatory notes and supplementary
schedules
• Clarifies information in financial statements
• Expands with additional detail
• Describes accounting policies
• Explains uncertainties and contingencies
Notes to Financial Statements
Auditor’s Report
• Certified Public Accountant – CPA
• Auditor (CPA) conducts independent
examination of financial statements
• Fair representation?
• Follow generally accepted accounting
principles (GAAP)?
• Unqualified opinion
Auditor’s Report
Monetary Unit Assumption
© PhotoDisc/Getty Images
Name of the
company CSU Corporation
Name of the
Income Statement
statement
For the Year Ended December 31, 2005
Period
of time
Do It Problem: CSU Corporation
CSU Corporation
Income Statement
For the Year Ended December 31, 2005
Revenues
Service revenue $17,000