Balance Sheet [Snap-shot]
-Total: assets, liabilities, equity as of a specific date (For example: December 31, 2006)
Basic Accounting Equation:Assets = Liabilities + Equity
Assets = Liabilities + Equity
Current Assets Current Liabilities Contributed Capital
Noncurrent Assets Long-term Debt *Preferred Stock
*Common Stock
*Paid-in-capital in excess of par
Retained Earnings (Ending balance)
Beginning Retained Earnings
(+)Net Income or (-) Net Loss
. (-)Dividends paid .
Retained Earnings Ending Balance
Income Statement [Movie]
Takes into consideration: ALL transactions during the operating cycle
( For example: For the Year Ended December 31, 2006)
Revenues – Expenses = Net Income or Net Loss
How are these two financial statements related?
The Balance Sheet shows the balance for Retained Earnings, an equity. Ending Retained Earnings
consist of the prior year’s Retained Earnings + Net income (or – Net Loss ) – Dividends paid during the
year.
Balance Sheet Income Statement
Equity includes Contains:
Ending Retained Earnings ---------------------------------- Net Income or Net Loss
Revenues
(-) Expenses
Net Income (or) Net Loss
Statement of Cash Flows [Movie]
( For example: For the Year Ended December 31, 2006)
Operating Activities
oPart of day to day operations i.e.:
Cash Inflows- Cash received from sales
Cash Outflows- Cash paid to pay employee wages
Investing Activities
oBuying and Selling Long term assets i.e.:
Cash Out- Buying a manufacturing facility
Cash In- Selling a large piece of machinery
Financing Activities
oCash is obtained or repaid to owners (equity-Stock) or creditors (debt) i.e.:
Cash In- Issue Stock to investors
