BALANCE SHEET – reports the amount of assets, liabilities, and stockholders’ equity of an accounting entity at a point in time.
INCOME STATEMENT – reports the revenues less the expenses of the accounting period.
STATEMENT OF STOCKHOLDERS’ EQUITY – reports the changes in each of the company’s stockholders’ equity accounts, including the change in the retained earnings balance caused by net income and dividends during the reporting period.
STATEMENT OF CASH FLOWS – reports inflows and outflows of cash during the accounting period in the categories of operating, investing, and financing.
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Chapter 1Financial Statements and DecisionsMcGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. The Accounting SystemThe Four Basic Financial StatementsBALANCE SHEET – reports the amount of assets, liabilities, and stockholders’ equity of an accounting entity at a point in time.INCOME STATEMENT – reports the revenues less the expenses of the accounting period.STATEMENT OF STOCKHOLDERS’ EQUITY – reports the changes in each of the company’s stockholders’ equity accounts, including the change in the retained earnings balance caused by net income and dividends during the reporting period. STATEMENT OF CASH FLOWS – reports inflows and outflows of cash during the accounting period in the categories of operating, investing, and financing. Balance SheetAssetsCashShort-Term InvestmentAccounts ReceivableNotes ReceivableInventory (to be sold)SuppliesPrepaid ExpensesLong-Term InvestmentsEquipmentBuildingsLandIntangiblesLiabilitiesAccounts PayableAccrued ExpensesNotes PayableTaxes PayableUnearned Revenue Bonds PayableStockholders’ EquityCommon StockRetained EarningsElements of the Balance SheetThe Accounting EquationA = L + SEAssetsLiabilitiesStockholders’EquityEconomic ResourcesSources of Financing for Economic ResourcesLiabilities: From CreditorsStockholders’ Equity: From StockholdersBalance Sheet Income StatementRevenuesSales RevenueFee RevenueInterest RevenueRent RevenueExpensesCost of Goods SoldWages ExpenseRent ExpenseInterest ExpenseDepreciation ExpenseAdvertising ExpenseInsurance ExpenseRepair ExpenseIncome Tax ExpenseElements of the Income StatementIncome StatementStatement of Stockholders’ equityCommon StockRetained EarningsElements of the Statement of Stockholders’ EquityBeginning Retained Earnings+Net Income-DividendsEnding Retained EarningsStatement of Stockholders’ equityCash Flows from Operating Activities Cash Flows from Investing Activities Cash Flows from Financing Activities Statement of cash flowsElements of the Statement of Cash FlowsNote that each of the three cash flow sources can be positive (net cash inflow) or negative (net cash outflow).+-/Statement of Cash FlowsCurrently, the Financial Accounting Standards Board (FASB) is recognized as the body to formulate GAAP.The SEC has worked closely with theaccounting profession towork out the detailed rules that havebecome known as GAAP.Generally Accepted Accounting PrinciplesTo ensure the accuracy of the company’sfinancial information, management: Maintains a system of controls. Hires external independent auditors. Forms a committee of the board of directors to review these other two safeguards.Ensuring the Accuracy of Financial StatementsEnd of Chapter 1