module 2- Financial statements Flashcards
2 primary objectives of businesses
- Profitability: ability to generate income.
- Solvency: the ability to pay debts as they become due.
4 basic financial statements
- Income statement
- Statement of stockholders equity
- balance sheet.
- Statement of cash flows
The statement stockholders equity
explains the changes in capital stock and retained earnings between two balance sheet dates
income statement
the financial statement that reflects a company’s profitability over a period of time
Balance sheet
Reflect a company’s solvency(ability to pay debts) and financial position at a point in time
Statements of cash flows
Shows the cash inflows and outflows for a company over a period of time
Revenue
amount of assets created from the sale of goods or services
Net income
Revenue- Expenses
Revenues> Expenses
Expenses
amount of assets consumed through business operations (wages, maintenance, equipment, etc.)
Net loss
Expenses > revenues
Dividends
the means by which corporation a corporation rewards its stockholders (owners) for providing with investment funds . This is usually a payment of cash to the owners of the businesses. It is a distribution of income to owners rather than an expense of doing business (do not appear on income statement)
Accounting Equation
Assets = Liabilities+ Equity
Assets
Cash, Accounts or loans receivable, land, inventory,
liability
Obligations that will require probable future sacrifice, either by paying assets or by delivering services.
ex.accounts payable (something you will pay later) wages payable, taxes payable, unearned revenue.
Equity
the amount that owners have invested in a company.
paid in capital
owners invest personal money in their business
Accounts payable
the amount that a company owes to its suppliers for inventory that the company received but has not payed for yet
Retained earnings
the amount of profit that has been generated by the company but has been kept in the business to buy assets
notes payable
written promises to pay a specific sum of money
Retained earnings
generally consists of the accumulated net income of the corporation minus the dividends.
capital stock
shows the amount the owners investment in the corporation
statement of cashflows
Shows the detailed cash inflows and cash outflows from operating, investing, and financing activities over a specific period of time.
