Chapter 2 Statement Flashcards
Components of an Income Statement
- *Net Sales**<== $ earned from sales - returns
- - Cost of Goods Sold*
- *Gross Profit** <== “Max Cushion” all exp must come from here
- - Selling, Gen, Admin Expens.* <== wages, advert, depreciat.
- *Income from operations** <== indicator of mgmt performance
- - Interest Expense* <== cost of borrowed funds
- *Income before Taxes** <== Taxable Income
- - Income Tax*
- Net Income* = Profit for the Period
Net income goes to Retained Earnings in the Stockholder’s Equity + Balance Sheet and to Cash Flow Statement.
The Income Statement
AKA: Statement of earnings, Profit/Loss Statement, Statement of Operations
Did the entity operate at a profit for the period of time (usually a year)? What was their revenue (net income) and what were their expenses?
It is the link between the beginning of the year balance sheet and the end of the year balance sheet.
Components of the Balance Sheet (Left Side)
Assets
Current Assets
Cash (from the statement of cash flow)
Accounts Receivable
Merchandise Inventory
Total Current Assets
Other Assets
Equipment
Land
Building (if owned)
Less: Accumulated Depreciation
Total Assets
Components of the Balance Sheet (Right Side)
Liabilities and Stockholder’s Equity
Current Liabilities
Accounts Payable
Other Accrued Liabilities
Short-Term Debt
Total Current Liabilities…
Long-Term Debt
Total Liabilities…
Stockholder’s Equity
Paid In Capital (usually common stock)
Retained Earnings
Total Stockholder’s Equity…
- Total Liabilities and Stockholder’s Equity*
- Note*: Sometimes Stockholder’s Equity is calculated on this sheet or just reported as Total Stockholder’s Equity without the different sections (paid in capital and retained earnings)
The Balance Sheet
AKA: The statement of Financial Position
Snapshot of the organization’s financial position frozen at a specific point in time.
The Balance Sheet Equation!!!!
Assets = Liabilities + Stockholder’s Equity
Stockholder’s Equity is also known as NET ASSETS.
Net Assets = Assets - Liabilities
Current Assets are likely to be converted into cash within one year.
Components of the Statement of Change in Stockholder’s Equity
Two Big Sections (Paid In Capital & Retained Earnings)
Paid-In Capital
Beginning Balance (Balance from previous year’s statement)
Common Stock (par value x shares issued)
Additional Paid-In Capital
Balance…
Retained Earnings
Beginning Balance (Balance from previous year’s statement)
Net Income for the year (from income statement)
Less: Cash Dividend
Balance……
Total Stockholder’s Equity (sum of both balances)
The total goes to the Balance Sheet at the end of the year.
Statement of Change in Stockholder’s Equity
AKA: Statement of change in… owner’s equity, capital stock, or retained earnings
Based on a period of time.
Under paid-in capital, sometimes just common stock is listed, if the stock has a par value, it will be listed here. Also important to see how many shares have been issued because the amount paid out in dividends is calculated by dividing dividends by outstanding stock.
Important!!! If you do not have an income statement, you can find Net Income under Retained Earnings, either on this sheet or in this section of the Balance Sheet!!!
Components of Statement of Cash Flow
Three major components (Operating, Investing, and Financing)
Cash flow from Operating Activities
Net Income (from income statement)
Depreciation (added back in bec. $ was not spent)
Inc. in Accts Receivable (subt. bec. $ is not in your bank)
Inc. in Merch. Inventory (subt. bec. it cost $ to buy)
Inc. in Current Liabilities (added bec. the $ has not left acct yet)
Net cash from operating activities…
Cash flow from Investing Activities
Cash paid for equipment (subt. bec. you spent $)
Cash flow from Financing Activities
Cash received from issue of long term debt (added bec. you received $)
Cash received from sales of common stock (added bec. you received $)
Payment of cash dividend common stock (subt. bec. you spent $)
Net cash provided from financing activities…
Net increase in cash for the year (Reported to balance sheet)
Statement of Cash Flow
Purpose is to identify the sources and uses of cash during the year.
It’s for a period of time like the income statement and stockholder’s equity.
It’s kinda the opposite of the other sheets. If the cash is still in your acct, you add it (i.e. money you owe that you haven’t paid. If the money is taken out to buy something (i.e. inventory) you subtract it even though technically inventory is an asset on the balance sheet.
Important! You can find net income on here as well under OPERATING ACTIVITIES.
