Unit 2: Financial Statements, Apuntes de Derecho

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UNIT 2

FINANCIAL

STATEMENTS

FUNCTIONS OF THE

ACCOUNTANT

• To keep track of accounting

information

• To prepare various reports from

the accounting information

FINANCIAL STATEMENTS

• They present the accounting information

in formal reports that tell interested

groups how the business is doing

• Prepared from information obtained from

the various business transactions that the

business recorded

• They are prepared at least once a year:

accounting period  12 months 4

THE BALANCE SHEET

It shows the financial position of a business on a specific

date.

It is a detailed presentation of the accounting equation

It provides a detailed listing of the various assets that a

business ownes, the liabilities that are owed to creditors,

and the value of the propietor’s ownership of the assets of

the business

The total value of the business assets must be in

agreement with the total value of the liabilities and capital

of the business

It must be prepared at least once a year

5

THE CLASSIFIED BALANCE SHEET

(LIABILITIES)

They are classified in a similar manner.

 CURRENT LIABILITIES are those to be settled within one

year or within the current accounting period. Accounts

payable, taxes payable, salaries payable and notes payable

(if the obligation is due within one year).

 LONG-TERM LIABILITIES are usually payable in more than a

year. Bonds payable and mortgages payable.

In the year in which a long-term liability becomes payable, it

is usually converted to a current liability

7

THE INCOME STATEMENT

• It DISCLOSES the revenues

generated for the accounting

period and the expenses charged

against these revenues

 Net income is called PROFITS when

revenues > expenses

 Net income is called LOSSES when

expenses > revenues

10

REGAL LIMOUSINE SERVICE

INCOME STATEMENT

For the year ended Decembre 31, 2008

Revenue:

Limousine Rental 24000

Expenses:

Repairs Expense 2350

Salaries Expense 14500

Gas and Oil Expense 3000

Total Expenses (19850)

Net Income 4150

11

EXPENSES

DECREASES in economic benefits

during the accounting period that

results in DECREASES in EQUITY,

other than those relating to

distributions to shareholders

EXPENSES

o Costs of goods sold represents the cost of the goods sold

to customers

o Advertising is the company’s cost to promote its products

in newspaper, television, and other advertising media

o Depreciation is the expense of using company-owned

buildings, equipment and furniture

o Other operating expenses is a broad category that

includes salaries paid to employees, utilities expenses,

(for electricity, gas and telephone), rent paid for lease

property in shopping centers

o Interest expense is the cost of borrowed money

THE STATEMENT OF CHANGES IN

EQUITY

o

It shows the changes that take

place in the propietor’s capital

over a period time (1 year)

o

Concerning profits, the owners

have the right to choose between

withdraw them or reinvest them

in the business

16

EXPLANATORY NOTES

It discloses the basis of preparation

of financial statements, significant

accounting policies and additional

information not present in other

staments but required and useful

for further comprehension of

business performance