Lesson 9
Financial Statements
Task Team of
FUNDAMENTAL ACCOUNTING
School of Business,Sun Yat-sen University
2
Outlines
?A General View of Financial statements
?Income statement
?Balance sheet
?Statement of owners’ equity
? A Simple Illustration
3
Opening Story
Show me the money!
Cuba Gooding Jr,uttered an immortal
line in the movie Jerry Maguire,“Show
me the money!” Well,that is what
financial statements do,They show you
the money.
?The questions are:
?Do they show you where a company’s money came from?
?Do they show you where it went,and where it is now,
?How accountants make all these ends satisfied?
4
General View of Financial
statements,GAAP
?Statement of Financial Position (Balance
Sheet).
?Income Statement.
?Statement of Cash Flows.
5
General View of Financial
statements,Stock vs,Flow
?Stock/ resources and obligations at a point
in time:
?Balance sheet.
?Flow/activity over a period of time:
?Income statement.
?Statement of cash flows.
6
Financial Statement Objectives
?Useful for investment decisions,(All financial
statements)
?Comprehensible,(All financial statements)
?About economic resources and claims on resources
(Balance Sheet).
?About financial performance during a period
(Income Statement).
?About cash flows (Statement of Cash Flows).
7
General View of Financial
statements,a Comparison
Point in
time
Point in time
Period of time
Income
Statement
Statement of
Owner’s Equity
Statement of
Cash Flows
Beginning
Balance
Sheet
Ending
Balance
Sheet
8
General View of Financial
statements,Brief Comments
The financial statements are a picture
of the company in financial terms.
Each financial statement relates to a specific
date or covers a particular period.
9
Information Disclosed on
Financial Statements
Question Answer
Financial
Statement
1,How well did the
company perform
(or operate) during
the period?
Revenues
– Expenses
Net income (Net loss)
Income
statement
2,Why did the company’s
retained earnings
change during the
period?
Beg,retained earnings
+ Net income (or – Net loss)
Ending retained earnings
Statement of
Retained earnings
10
Information Disclosed on
Financial Statements (cont)
3,What is the company’s
financial position at the
end of the period?
Assets
= Liabilities
+ Owners’ equity
Balance
sheet
Question Answer
Financial
Statement
4,How much cash did
the company generate
and spend during
the period?
Operating cash flows
± Investing cash flows
± Financing cash flows
Increase or decrease in cash
Statement
of
cash
flows
11
Income Statement
?Also called,Profit & Loss statement = P&L
statement = statement of earnings =
statement of operations
?Technically subordinate to BS.
?Shows detail of changes to RE.
?Many investors consider IS more important
than BS.
?Variations in format.
12
Parts of Income Statement
? Heading:
1,Name of entity.
2,Name of statement
3,Time period covered.
? Revenues.
? Cost of Sales.
? Gross Margin.
? Expenses.
? Net Income
13
Revenues in
Income Statement
?Several separate revenue items or net.
?Net sales = gross sales - sales returns and
allowances - sales or cash discounts.
?Trade discounts not shown.
?Excludes sales or excise taxes collected for government.
?Other revenues (from activities not associated with sales
of entity’s goods/services) may be included in net sales
or shown separately,
14
Expenses on
Income Statement
?Cost of Sales (or cost of goods sold),
?Associated with a decrease in the asset inventory.
?Gross margin = gross profit = Sales - COGS.
?May or may not be shown.
?Separate disclosure of:
?Research & development expenses.
?Interest expense.
15
Income Statement Format
?Operating income may be shown before
Other income and expense.
?Net income = Income before taxes – Income
tax expense.
?Income before taxes = Operating income
adjusted for other revenues and expenses.
16
R e v e n u e s,
C on s u l ti n g r e v e n u e 3,800$
R e n tal r e v e n u e 300
Total r e v e n u e s 4,100$
O p e r ati n g E xp e n s e s,
R e n t e xp e n s e 1,000$
S al ar i e s e xp e n s e 700
Total op e r ati n g e xp e n s e s 1,700
N e t i n c ome 2,400$
F i n l ay I n te r i or s
I n c ome S tate me n t
F or M on th E n d e d Jan u ar y 31,2001
Inflows of assets
in exchange for
products and
services
provided to
customers.
Example of Income
Statement
17
Example of Income Statement
(cont)
Outflows or
the using
up of assets
that result
from providing
products
and services to
customers.
R e v e n u e s,
C on s u l ti n g r e v e n u e 3,800$
R e n tal r e v e n u e 300
Total r e v e n u e s 4,100$
O p e r ati n g E xp e n s e s,
R e n t e xp e n s e 1,000$
S al ar i e s e xp e n s e 700
Total op e r ati n g e xp e n s e s 1,700
N e t i n c ome 2,400$
F i n l ay I n te r i or s
I n c ome S tate me n t
F or M on th E n d e d Jan u ar y 31,2001
18
Example of Income Statement
(cont)
Revenues > Expenses
Net Income
Revenues < Expenses
Net Loss
R e v e n u e s,
C on s u l ti n g r e v e n u e 3,800$
R e n tal r e v e n u e 300
Total r e v e n u e s 4,100$
O p e r ati n g E xp e n s e s,
R e n t e xp e n s e 1,000$
S al ar i e s e xp e n s e 700
Total op e r ati n g e xp e n s e s 1,700
N e t i n c ome 2,400$
F i n l ay I n te r i or s
I n c ome S tate me n t
F or M on th E n d e d Jan u ar y 31,2001
19
Balance Sheet
?Point in time or status report.
?More formally,Statement of Financial
Position.
?Contains (and shows equality of amounts of):
?Assets.
?Liabilities and Owners’ equity.
20
C a s h 8,4 0 0$ A c c o u n t s p a y a b l e 200$
S u p p l i e s 3,6 0 0 N o t e s p a y a b l e 6,0 0 0
E q u i p m e n t 2 6,0 0 0 T o t a l l i a b i l i t i e s 6,2 0 0$
Wa n g F a n g,c a p i t a l 3 1,8 0 0
T o t a l a s s e t s 3 8,0 0 0$
T o t a l l i a b i l i t i e s a n d
o w n e r ' s e q u i t y 3 8,0 0 0$
A s s e ts
O w n e r ' s Eq u i ty
Li a b i l i ti e s
B e a u ty P h o to S to r e
B a l a n c e S h e e t
J a n u a r y 3 1,2 0 0 5
Beauty Photo Store,
Balance Sheet
21
Assets
?Assets are properties or economic resources
owned by a business
?They are expected to provide future benefits
to the business.
22
Liabilities
?Liabilities are obligations of the business.
?They are claims against the assets of the
business.
23
Equity
?Equity is the owner’s claim on the assets of
the business.
?It is the residual interest in he assets of the
business after deducting liabilities
24
An Illustration of Balance Sheet
Assets:
Current assets:
Cash and cash equivalents $ 68 $ 80
Short-term investments 5 11
Accounts receivable 74 63
Inventories 104 81
Prepaid expenses 19 18
Total current assets $270 $253
Investments 1 6
Property,plant,and equipment,net 90 42
Intangible and other assets 20 7
Total assets $381 $308
December 31,
2001 2000Amounts in millions
25
An Illustration of Balance Sheet
(cont)
Liabilities:
Current liabilities:
Notes payable,short-term $ 16 $ 5
Accounts payable 21 19
Advertising payable 15 14
Compensation (salary) payable 8 6
Other accrued expenses payable 28 19
Income taxes payable 18 20
Total current liabilities $106 $ 83
Long-term liabilities 11 4
Total liabilities $117 $ 87
December 31,
2001 2000Amounts in millions
26
An Illustration of Balance Sheet
(cont)
Stockholders’ equity:
Common stock $ 16 $ 15
Retained earnings 252 208
Other equity (4) (2)
Total stockholders’ equity $264 $221
Total liabilities and stockholders’ equity $381 $308
December 31,
2001 2000Amounts in millions
27
An Illustration of Balance Sheet
(cont)
Total assets $381
= Total liabilities
Current $106
Long-term 11
Total liabilities 117
+ Total stockholders’ equity 264
Total liabilities and stockholders’ equity $381
2001
Must
equal
28
Flow Statements
?Explains changes between the dates of the
two balance sheet snapshots.
?2 types of flow statements:
?Income statement (and related statement of
retained earnings).
→ Reconciles change in RE.
?Statement of Cash Flows.
→ Reconciles changes in cash.
29
Statement of Cash Flows
?Accounts provide information summarized
in balance sheet and income statement.
?Third statement required by GAAP.
?Does not affect the way transactions are
recorded.
?Derived from data reported in other
financial statements.
30
The Statement of Cash Flows
The statement of cash flows reports
the company’s cash inflows and
outflows from operating,investing,
and financing activities.
31
Statement of cash flows
?Provides info about cash flows associated
with the period’s operations and investing
and financing activities.
?Numbers on cash flow statement are
objective,cash is cash.
?Eliminates judgments and estimates
involved with accrual accounting and the
income statement and balance sheet.
32
Statement of Cash Flows:
2 Categories of Activities
?Sources = activities that
generate cash.
?Uses = activities that
involve spending cash
33
Sources
?Operations.
?New borrowings.
?New stock issues.
?Sale of property,plant,and equipment.
?Sale of other non-current assets.
34
Uses
?Cash dividends.
?Repayment of borrowings.
?Repurchase of stock.
?Purchase of property,plant,and equipment.
?Purchase of non-current assets.
35
Illustration:
Statement of Cash Flows
Operating activities:
Net income $44 $56
Adjustments to reconcile net income
to net cash from operating activities 5 (16)
Net cash provided by operating activities $49 $40
Amounts in millions
December 31,
2001 2000
36
Illustration (cont):
Statement of Cash Flows
Investing activities:
Business acquisitions $(16) (2)
Additions to property,plant,and equipment (56) (20)
Sale of investments 6 –
Other investing activities (2) (2)
Net cash used for investing activities $(68) $(24)
Amounts in millions
December 31,
2001 2000
37
Illustration (cont):
Statement of Cash Flows
Financing activities:
Issuance of common stock $3 $ 1
Purchase and retirement of common stock (4) (28)
Issuance of notes payable (borrowing) 9 –
Other financing activities (1) –
Net cash provided by financing activities $7 $(27)
Amounts in millions
December 31,
2001 2000
38
Illustration (cont),
Statement of Cash Flows
Net increase in cash and cash equivalents $(12) $(11)
Cash and cash equivalents,
beginning of year 80 91
Cash and cash equivalents,end of year $ 68 $ 80
Amounts in millions
December 31,
2001 2000
39
Statement of owner’s equity
?The statement of owner’s equity reports on
changes in equity over the reporting period.
?Start with beginning equity
?Adjust for events,
?Increase:
→ Investments by owner
→ Net income
?decrease:
→ Owner withdrawals
→ Net loss
40
Two Categories of
Shareholders’ Equity
?Paid-in or contributed capital.
?Retained earnings.
41
Balance Sheet and
Changes in Equity
Owner’s
Equity
Owner’s
Investment
Revenues
Owner’s
Withdrawal
Expenses
42
C a s h f l o w s f r o m o p e r a t i n g a c t i v i t i e s,
C a s h r e c e i v e d f r o m c l i e n t s 4,1 0 0$
C a s h p a i d f o r s u p p l i e s ( 2,5 0 0 )
C a s h p a i d f o r r e n t ( 1,0 0 0 )
C a s h p a i d t o e m p l o y e e ( 7 0 0 )
N e t c a s h u s e d b y o p e r a t i n g a c i t i v i t i e s ( 1 0 0 )$
C a s h f l o w s f r o m i n v e s t i n g a c t i v i t i e s,
P u r c h a s e o f f u r n i t u r e ( 2 0,0 0 0 )$
N e t c a s h u s e d b y i n v e s t i n g a c t i v i t i e s ( 2 0,0 0 0 )
C a s h f l o w s f r o m f i n a n c i n g a c t i v i t i e s,
I n v e s t m e n t b y o w n e r 3 0,0 0 0$
P a r t i a l r e p a y m e n t o f n o t e ( 9 0 0 )
Wi t h d r a w a l b y o w n e r ( 6 0 0 )
N e t c a s h p r o v i d e d b y f i n a n c i n g a c t i v i t i e s 2 8,5 0 0
N e t i n c r e a s e i n c a s h 8,4 0 0$
C a s h b a l a n c e,J a n u a r y 1 -
C a s h b a l a n c e,J a n u a r y 3 1 8,4 0 0$
B e a u ty P h o to S to r e
S ta te m e n t o f C a s h F l o w s
F o r M o n th En d e d J a n u a r y 3 1,2 0 0 1
43
w a n g F a n g,c a p i t a l,J a n u a r y 1 -$
A d d,
I n v e s t m e n t b y o w n e r 3 0,0 0 0$
N e t i n c o m e 2,4 0 0 3 2,4 0 0
T o t a l 3 2,4 0 0
L e s s, Wi t h d r a w a l b y o w n e r 600
Wa n g F a n g,c a p i t a l,J a n u a r y 3 1 3 1,8 0 0$
B e a u t y P h o t o S t o r e
S t a t e m e n t o f O w n e r ' s E q u i t y
F o r m o n t h e n d e d J a n u a r y 3 1,2 0 0 5
Beauty Photo Store:
Statement of Owner’s Equity
44
Summary
?There are two major types of financial
statements-stock reports and flow reports
?Financial statement can serve as an
important device to disclose information to
investors in order for them to make better
decisions
?Four major financial statements are
compared,explained and illustrated in this
lesson
45
Case for Open Discussion
?The financial statement sits imposingly in front of
you,a stream of numbers rolling endlessly down
the page,
?You are a new board member,studying the
numbers,hoping to decipher their meaning,Then
you are hit with the accounting jargon,balance
sheets and income statements; cash basis and
accrual basis,You think you hear the financial
statements quietly laugh at you,and you
begin to wonder if the board should hire
a psychiatrist instead of an accountant,
46
Suggested Questions
?How are financial statements prepared?
?Do they make things simpler?
?What information can we infer from these
statements?
?How can we make use of them?
?etc…
The End of Lesson 9
Financial Statements
Task Team of
FUNDAMENTAL ACCOUNTING
School of Business,Sun Yat-sen University
2
Outlines
?A General View of Financial statements
?Income statement
?Balance sheet
?Statement of owners’ equity
? A Simple Illustration
3
Opening Story
Show me the money!
Cuba Gooding Jr,uttered an immortal
line in the movie Jerry Maguire,“Show
me the money!” Well,that is what
financial statements do,They show you
the money.
?The questions are:
?Do they show you where a company’s money came from?
?Do they show you where it went,and where it is now,
?How accountants make all these ends satisfied?
4
General View of Financial
statements,GAAP
?Statement of Financial Position (Balance
Sheet).
?Income Statement.
?Statement of Cash Flows.
5
General View of Financial
statements,Stock vs,Flow
?Stock/ resources and obligations at a point
in time:
?Balance sheet.
?Flow/activity over a period of time:
?Income statement.
?Statement of cash flows.
6
Financial Statement Objectives
?Useful for investment decisions,(All financial
statements)
?Comprehensible,(All financial statements)
?About economic resources and claims on resources
(Balance Sheet).
?About financial performance during a period
(Income Statement).
?About cash flows (Statement of Cash Flows).
7
General View of Financial
statements,a Comparison
Point in
time
Point in time
Period of time
Income
Statement
Statement of
Owner’s Equity
Statement of
Cash Flows
Beginning
Balance
Sheet
Ending
Balance
Sheet
8
General View of Financial
statements,Brief Comments
The financial statements are a picture
of the company in financial terms.
Each financial statement relates to a specific
date or covers a particular period.
9
Information Disclosed on
Financial Statements
Question Answer
Financial
Statement
1,How well did the
company perform
(or operate) during
the period?
Revenues
– Expenses
Net income (Net loss)
Income
statement
2,Why did the company’s
retained earnings
change during the
period?
Beg,retained earnings
+ Net income (or – Net loss)
Ending retained earnings
Statement of
Retained earnings
10
Information Disclosed on
Financial Statements (cont)
3,What is the company’s
financial position at the
end of the period?
Assets
= Liabilities
+ Owners’ equity
Balance
sheet
Question Answer
Financial
Statement
4,How much cash did
the company generate
and spend during
the period?
Operating cash flows
± Investing cash flows
± Financing cash flows
Increase or decrease in cash
Statement
of
cash
flows
11
Income Statement
?Also called,Profit & Loss statement = P&L
statement = statement of earnings =
statement of operations
?Technically subordinate to BS.
?Shows detail of changes to RE.
?Many investors consider IS more important
than BS.
?Variations in format.
12
Parts of Income Statement
? Heading:
1,Name of entity.
2,Name of statement
3,Time period covered.
? Revenues.
? Cost of Sales.
? Gross Margin.
? Expenses.
? Net Income
13
Revenues in
Income Statement
?Several separate revenue items or net.
?Net sales = gross sales - sales returns and
allowances - sales or cash discounts.
?Trade discounts not shown.
?Excludes sales or excise taxes collected for government.
?Other revenues (from activities not associated with sales
of entity’s goods/services) may be included in net sales
or shown separately,
14
Expenses on
Income Statement
?Cost of Sales (or cost of goods sold),
?Associated with a decrease in the asset inventory.
?Gross margin = gross profit = Sales - COGS.
?May or may not be shown.
?Separate disclosure of:
?Research & development expenses.
?Interest expense.
15
Income Statement Format
?Operating income may be shown before
Other income and expense.
?Net income = Income before taxes – Income
tax expense.
?Income before taxes = Operating income
adjusted for other revenues and expenses.
16
R e v e n u e s,
C on s u l ti n g r e v e n u e 3,800$
R e n tal r e v e n u e 300
Total r e v e n u e s 4,100$
O p e r ati n g E xp e n s e s,
R e n t e xp e n s e 1,000$
S al ar i e s e xp e n s e 700
Total op e r ati n g e xp e n s e s 1,700
N e t i n c ome 2,400$
F i n l ay I n te r i or s
I n c ome S tate me n t
F or M on th E n d e d Jan u ar y 31,2001
Inflows of assets
in exchange for
products and
services
provided to
customers.
Example of Income
Statement
17
Example of Income Statement
(cont)
Outflows or
the using
up of assets
that result
from providing
products
and services to
customers.
R e v e n u e s,
C on s u l ti n g r e v e n u e 3,800$
R e n tal r e v e n u e 300
Total r e v e n u e s 4,100$
O p e r ati n g E xp e n s e s,
R e n t e xp e n s e 1,000$
S al ar i e s e xp e n s e 700
Total op e r ati n g e xp e n s e s 1,700
N e t i n c ome 2,400$
F i n l ay I n te r i or s
I n c ome S tate me n t
F or M on th E n d e d Jan u ar y 31,2001
18
Example of Income Statement
(cont)
Revenues > Expenses
Net Income
Revenues < Expenses
Net Loss
R e v e n u e s,
C on s u l ti n g r e v e n u e 3,800$
R e n tal r e v e n u e 300
Total r e v e n u e s 4,100$
O p e r ati n g E xp e n s e s,
R e n t e xp e n s e 1,000$
S al ar i e s e xp e n s e 700
Total op e r ati n g e xp e n s e s 1,700
N e t i n c ome 2,400$
F i n l ay I n te r i or s
I n c ome S tate me n t
F or M on th E n d e d Jan u ar y 31,2001
19
Balance Sheet
?Point in time or status report.
?More formally,Statement of Financial
Position.
?Contains (and shows equality of amounts of):
?Assets.
?Liabilities and Owners’ equity.
20
C a s h 8,4 0 0$ A c c o u n t s p a y a b l e 200$
S u p p l i e s 3,6 0 0 N o t e s p a y a b l e 6,0 0 0
E q u i p m e n t 2 6,0 0 0 T o t a l l i a b i l i t i e s 6,2 0 0$
Wa n g F a n g,c a p i t a l 3 1,8 0 0
T o t a l a s s e t s 3 8,0 0 0$
T o t a l l i a b i l i t i e s a n d
o w n e r ' s e q u i t y 3 8,0 0 0$
A s s e ts
O w n e r ' s Eq u i ty
Li a b i l i ti e s
B e a u ty P h o to S to r e
B a l a n c e S h e e t
J a n u a r y 3 1,2 0 0 5
Beauty Photo Store,
Balance Sheet
21
Assets
?Assets are properties or economic resources
owned by a business
?They are expected to provide future benefits
to the business.
22
Liabilities
?Liabilities are obligations of the business.
?They are claims against the assets of the
business.
23
Equity
?Equity is the owner’s claim on the assets of
the business.
?It is the residual interest in he assets of the
business after deducting liabilities
24
An Illustration of Balance Sheet
Assets:
Current assets:
Cash and cash equivalents $ 68 $ 80
Short-term investments 5 11
Accounts receivable 74 63
Inventories 104 81
Prepaid expenses 19 18
Total current assets $270 $253
Investments 1 6
Property,plant,and equipment,net 90 42
Intangible and other assets 20 7
Total assets $381 $308
December 31,
2001 2000Amounts in millions
25
An Illustration of Balance Sheet
(cont)
Liabilities:
Current liabilities:
Notes payable,short-term $ 16 $ 5
Accounts payable 21 19
Advertising payable 15 14
Compensation (salary) payable 8 6
Other accrued expenses payable 28 19
Income taxes payable 18 20
Total current liabilities $106 $ 83
Long-term liabilities 11 4
Total liabilities $117 $ 87
December 31,
2001 2000Amounts in millions
26
An Illustration of Balance Sheet
(cont)
Stockholders’ equity:
Common stock $ 16 $ 15
Retained earnings 252 208
Other equity (4) (2)
Total stockholders’ equity $264 $221
Total liabilities and stockholders’ equity $381 $308
December 31,
2001 2000Amounts in millions
27
An Illustration of Balance Sheet
(cont)
Total assets $381
= Total liabilities
Current $106
Long-term 11
Total liabilities 117
+ Total stockholders’ equity 264
Total liabilities and stockholders’ equity $381
2001
Must
equal
28
Flow Statements
?Explains changes between the dates of the
two balance sheet snapshots.
?2 types of flow statements:
?Income statement (and related statement of
retained earnings).
→ Reconciles change in RE.
?Statement of Cash Flows.
→ Reconciles changes in cash.
29
Statement of Cash Flows
?Accounts provide information summarized
in balance sheet and income statement.
?Third statement required by GAAP.
?Does not affect the way transactions are
recorded.
?Derived from data reported in other
financial statements.
30
The Statement of Cash Flows
The statement of cash flows reports
the company’s cash inflows and
outflows from operating,investing,
and financing activities.
31
Statement of cash flows
?Provides info about cash flows associated
with the period’s operations and investing
and financing activities.
?Numbers on cash flow statement are
objective,cash is cash.
?Eliminates judgments and estimates
involved with accrual accounting and the
income statement and balance sheet.
32
Statement of Cash Flows:
2 Categories of Activities
?Sources = activities that
generate cash.
?Uses = activities that
involve spending cash
33
Sources
?Operations.
?New borrowings.
?New stock issues.
?Sale of property,plant,and equipment.
?Sale of other non-current assets.
34
Uses
?Cash dividends.
?Repayment of borrowings.
?Repurchase of stock.
?Purchase of property,plant,and equipment.
?Purchase of non-current assets.
35
Illustration:
Statement of Cash Flows
Operating activities:
Net income $44 $56
Adjustments to reconcile net income
to net cash from operating activities 5 (16)
Net cash provided by operating activities $49 $40
Amounts in millions
December 31,
2001 2000
36
Illustration (cont):
Statement of Cash Flows
Investing activities:
Business acquisitions $(16) (2)
Additions to property,plant,and equipment (56) (20)
Sale of investments 6 –
Other investing activities (2) (2)
Net cash used for investing activities $(68) $(24)
Amounts in millions
December 31,
2001 2000
37
Illustration (cont):
Statement of Cash Flows
Financing activities:
Issuance of common stock $3 $ 1
Purchase and retirement of common stock (4) (28)
Issuance of notes payable (borrowing) 9 –
Other financing activities (1) –
Net cash provided by financing activities $7 $(27)
Amounts in millions
December 31,
2001 2000
38
Illustration (cont),
Statement of Cash Flows
Net increase in cash and cash equivalents $(12) $(11)
Cash and cash equivalents,
beginning of year 80 91
Cash and cash equivalents,end of year $ 68 $ 80
Amounts in millions
December 31,
2001 2000
39
Statement of owner’s equity
?The statement of owner’s equity reports on
changes in equity over the reporting period.
?Start with beginning equity
?Adjust for events,
?Increase:
→ Investments by owner
→ Net income
?decrease:
→ Owner withdrawals
→ Net loss
40
Two Categories of
Shareholders’ Equity
?Paid-in or contributed capital.
?Retained earnings.
41
Balance Sheet and
Changes in Equity
Owner’s
Equity
Owner’s
Investment
Revenues
Owner’s
Withdrawal
Expenses
42
C a s h f l o w s f r o m o p e r a t i n g a c t i v i t i e s,
C a s h r e c e i v e d f r o m c l i e n t s 4,1 0 0$
C a s h p a i d f o r s u p p l i e s ( 2,5 0 0 )
C a s h p a i d f o r r e n t ( 1,0 0 0 )
C a s h p a i d t o e m p l o y e e ( 7 0 0 )
N e t c a s h u s e d b y o p e r a t i n g a c i t i v i t i e s ( 1 0 0 )$
C a s h f l o w s f r o m i n v e s t i n g a c t i v i t i e s,
P u r c h a s e o f f u r n i t u r e ( 2 0,0 0 0 )$
N e t c a s h u s e d b y i n v e s t i n g a c t i v i t i e s ( 2 0,0 0 0 )
C a s h f l o w s f r o m f i n a n c i n g a c t i v i t i e s,
I n v e s t m e n t b y o w n e r 3 0,0 0 0$
P a r t i a l r e p a y m e n t o f n o t e ( 9 0 0 )
Wi t h d r a w a l b y o w n e r ( 6 0 0 )
N e t c a s h p r o v i d e d b y f i n a n c i n g a c t i v i t i e s 2 8,5 0 0
N e t i n c r e a s e i n c a s h 8,4 0 0$
C a s h b a l a n c e,J a n u a r y 1 -
C a s h b a l a n c e,J a n u a r y 3 1 8,4 0 0$
B e a u ty P h o to S to r e
S ta te m e n t o f C a s h F l o w s
F o r M o n th En d e d J a n u a r y 3 1,2 0 0 1
43
w a n g F a n g,c a p i t a l,J a n u a r y 1 -$
A d d,
I n v e s t m e n t b y o w n e r 3 0,0 0 0$
N e t i n c o m e 2,4 0 0 3 2,4 0 0
T o t a l 3 2,4 0 0
L e s s, Wi t h d r a w a l b y o w n e r 600
Wa n g F a n g,c a p i t a l,J a n u a r y 3 1 3 1,8 0 0$
B e a u t y P h o t o S t o r e
S t a t e m e n t o f O w n e r ' s E q u i t y
F o r m o n t h e n d e d J a n u a r y 3 1,2 0 0 5
Beauty Photo Store:
Statement of Owner’s Equity
44
Summary
?There are two major types of financial
statements-stock reports and flow reports
?Financial statement can serve as an
important device to disclose information to
investors in order for them to make better
decisions
?Four major financial statements are
compared,explained and illustrated in this
lesson
45
Case for Open Discussion
?The financial statement sits imposingly in front of
you,a stream of numbers rolling endlessly down
the page,
?You are a new board member,studying the
numbers,hoping to decipher their meaning,Then
you are hit with the accounting jargon,balance
sheets and income statements; cash basis and
accrual basis,You think you hear the financial
statements quietly laugh at you,and you
begin to wonder if the board should hire
a psychiatrist instead of an accountant,
46
Suggested Questions
?How are financial statements prepared?
?Do they make things simpler?
?What information can we infer from these
statements?
?How can we make use of them?
?etc…
The End of Lesson 9
