Chapter 2 - Basic financial statements. After reading the material in this chapter, you should be able to: Explain the nature and general purpose of financial statements, explain certain accounting principles that are important for an understanding of financial statements and how professional judgment by accountants may affect the application of those principles, demonstrate how certain business transactions affect the elements of the accounting equation: Assets = Liabilities+ Owner's Equity,. | BASIC FINANCIAL STATEMENTS Chapter 2 2 Introduction to Financial Statements Companies prepare interim financial statements and annual financial statements. 2000 X Introduction to Financial Statements Three primary financial statements. Income Statement Balance Sheet Statement of Cash Flows We will use a corporation to describe these statements. Introduction to Financial Statements Describes where the enterprise stands at a specific date. Income Statement Balance Sheet Statement of Cash Flows Introduction to Financial Statements Depicts the revenue and expenses for a designated period of time. Income Statement Balance Sheet Statement of Cash Flows Introduction to Financial Statements Revenues result in positive cash flow. Expenses result in negative cash flow. Either in the past, present, or future. Introduction to Financial Statements Net income (or net loss) is simply the difference between revenues and expenses. Income Statement Balance Sheet Statement of Cash Flows Introduction to Financial Statements Depicts the ways cash has changed during a designated period of time. Income Statement Balance Sheet Statement of Cash Flows The Concept of the Business Entity Vagabond Travel Agency A business entity is separate from the personal affairs of its owner. A Starting Point: Statement of Financial Position Assets Assets are economic resources that are owned by the business and are expected to provide positive future cash flows. Assets Cost Principle Going-Concern Assumption Objectivity Principle Stable-Dollar Assumption These accounting principles support cost as the basis for asset valuation. Liabilities Liabilities are debts that represent negative future cash flows for the enterprise. Owners’ Equity Owners’ equity represents the owner’s claim to the assets of the business. Owners’ Equity Changes in Owners’ Equity Owners’ Investments Business Earnings Payments to Owners Business Losses The Accounting Equation Assets = Liabilities + Owners’ Equity $300,000 = $80,000 + | BASIC FINANCIAL STATEMENTS Chapter 2 2 Introduction to Financial Statements Companies prepare interim financial statements and annual financial statements. 2000 X Introduction to Financial Statements Three primary financial statements. Income Statement Balance Sheet Statement of Cash Flows We will use a corporation to describe these statements. Introduction to Financial Statements Describes where the enterprise stands at a specific date. Income Statement Balance Sheet Statement of Cash Flows Introduction to Financial Statements Depicts the revenue and expenses for a designated period of time. Income Statement Balance Sheet Statement of Cash Flows Introduction to Financial Statements Revenues result in positive cash flow. Expenses result in negative cash flow. Either in the past, present, or future. Introduction to Financial Statements Net income (or net loss) is simply the difference between revenues and expenses. Income Statement Balance Sheet Statement of Cash Flows Introduction to
