Introduction of Financial Statements

Topics: Generally Accepted Accounting Principles, Depreciation, Balance sheet Pages: 14 (3432 words) Published: May 18, 2013
Financial Statement:
A Summary report which quantitatively describes the financial health of a company

Purpose of financial Statement:
The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise to the shareholders and lenders. it is useful to a wide range of users in making economic decisions. Components of Financial Statement:

Profit & Loss Statement / Income Statement
Retained earnings Statement
Balance Sheet
Cash Flow Statement
Profit & Loss Statement / Income Statement:
The income statement is a summary of the operational activities of a company during a certain period of time. It shows how the net income of the firm is arrived at over a stated period. Types of Income Statement:

Single Step Income Statement:
It consists of two groupings: revenues and expenses. Total expenses are subtracted from total revenues to arrive at net income or loss. Multiple Step Income Statement:
It separates the operating transactions from non-operating transaction, and matching costs and expenses with related revenues. It highlights certain intermediate components of income. Condensed Income Statement:

A condensed income statement is one that summarizes much of the income statement detail into a few captions and amounts. Details of these captions are present in Notes to account. Retain Earning Statement:

The financial statement which calculates the balance of retained earnings at the end of the period is called the statement of retained earnings. It is very similar to the statement of changes in equity however it only shows how retained earnings changed during the period.

Your Company NameRetained Earnings StatementFor Month Ended June 30, 20XX| Beginning retained earnings, June 1, 20XX| |
Add: Net income| |
Less: Dividends | |
Ending Retained earning, June 30, 20XX| |

Balance Sheet:
The balance sheet is a snapshot of the financial standing of a business on a particular date. Components of Balance Sheet:
1. Asset
2. Liabilities
3. Owners’ equity
Asset = liabilities + owner’s equity
Assets include anything the business owns or money that the business holds.

Current Assets:
Cash & equivalents
Accounts Receivables
Less: Allowances for bad debts
Trade Receivables
Affiliated Companies
Installment notes and contracts
Fair value of securities
Pre-paid Expense
Short term Investments
Long Term Investments:
Equity Investment
Debt Investment
Other Investment
Plant, Property and Equipment
Less: Depreciation for Building
Less: Depreciation for Equipment
Intangible Assets:
Liabilities include anything the business owes to another organization or individual. Current liabilities:
Accounts Payable
Unearned Revenue
Accrued employees compensation
Income Tax Payable
Short term Notes Payable
Accrued Special charges
Current maturities of Long term Debt
Long Term Liabilities:
Long term Debt
Obligation under Capital Leases
Notes Payable
Owner’s Equity:
Equity includes stock and retained earnings.
Capital Stock
Additional Paid-in Capital
Retained Earnings
Cash Flow Statement 

Cash Flow Statement, presents the movement in cash and bank balances over a period. The movement in cash flows is classified into the following segments: * Operating Activities: Represents the cash flow from primary activities of a business. * Investing Activities: Represents cash flow from the purchase and sale of assets other than inventories (e.g. purchase of a factory plant) * Financing Activities: Represents cash flow generated or spent on raising and repaying share capital and debt together with the payments of interest and dividends.

Cash Discount:
Cash discount is the discount offered by seller for paying cash early. Cash discount is only offered on credit sales where...
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