Intro To Financial Statements Flashcards
(39 cards)
Sole Proprietorship
- A business owned by one person
- Simple to set up
- gives owner control of business
- more favorable tax treatment
- personally liable for debts and obligations
Partnership
- owned by 2 or more people
- personally liable to debts and obligations
- often formed because multiple partners bring unique skills or resources
Corporation
- investors receive stock shares to indicate ownership claim and easier to transfer ownership
- business organized as a separate legal entity
- easier to raise funds
- higher taxes
- limited liability
Types of users: INTERNAL
Management of the company
Types of users: EXTERNAL
Public; don’t work for company
- investor
- creditors (bank)
- prospective employee
- prospective customer
Financial Reports
Financial statements include information about a company’s PAST performance
Types of Financial Statements
- Income statement
- Statement of Retained Earnings / Stockholder’s Equity Statement
- Balance Sheet
- Statement of Cash Flows
Income Statement
- statement of results of operations
- reports revenues, expenses, and net income (profit) or net loss of a specific period of time (i.e. only 2023)
- excludes revenues/expenses from prior periods
- lists company’s revenues followed by its expenses
Net Income FORMULA
REVENUES - EXPENSES = NET INCOME (LOSS)
Income Statement FORMAT
Company name
Income Statement
For the period ended 12/31/23
Revenues
Inflows from operating a company or money earned from doing business.
Main source of revenue: SALES REVENUE: amount charged to customers for products or services
Retained Earnings Statement
- net income retained in the corporation
- “saved net income” includes net income from prior years
- shows the amounts and causes in retained earnings for a specific period of time (same as I/S)
Retained Earnings Statements FORMULA
Beginning retained earnings
+/- net income
- dividends
= ended retained earnings
Dividends
Distributions of earnings (in either the form of stock or cash) to stockholders
Balance Sheet (Statement of Financial Position)
- reports assets, liabilities, and stockholders equity as a specific date (cumulative)
- occurs at a specific date
Accounting FORMULA
Assets = liabilities + stockholders equity
Assets - liabilities = stockholders equity
- accounting equation is the balance sheet formula or “financial picture of the company”
Sections of a Balance Sheet
Assets, liabilities, and stockholders equity
Assets
- listed first and in order of liquidity (how quickly it can be converted to cash)
- owned by the company
- have a value (future benefit)
- ex: cash, office supplies, computers, accounts receivables
Liquidity
How quickly it can turn to cash
Liabilities
What a company owes
Stockholders Equity
- owners share of the assets after liabilities are paid (“leftover” / “residual”)
1. Common Stock
2. Retained Earnings - law: creditors are paid before the owners (shareholders)
Common Stock
Money earned from selling stock
Retained Earnings
Money earned from running the company
Statement of Cash Flows
- reports why a company receives cash (resources) and used cash (uses) during a specific time period
- helps determine if a company has enough cash to operate and pay dividends
- all increases and decreases in cash are recognized in operating, investing, and financing activities
