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Ch 1 - 04 Financial Statements Overview

The document outlines the four primary financial statements: the Income Statement, Owner’s Equity Statement, Balance Sheet, and Statement of Cash Flows, along with their preparation and interrelationships. It emphasizes the importance of net income in determining owner’s equity and how these statements reflect a company's financial condition over specific periods. Additionally, it provides a practical example related to Flanagan Company to illustrate the calculation of total assets, net income, and owner's equity.

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2 views

Ch 1 - 04 Financial Statements Overview

The document outlines the four primary financial statements: the Income Statement, Owner’s Equity Statement, Balance Sheet, and Statement of Cash Flows, along with their preparation and interrelationships. It emphasizes the importance of net income in determining owner’s equity and how these statements reflect a company's financial condition over specific periods. Additionally, it provides a practical example related to Flanagan Company to illustrate the calculation of total assets, net income, and owner's equity.

Uploaded by

The online Guy
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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1-1
LEARNING Describe the four financial statements
OBJECTIVE
5
and how they are prepared.

Companies prepare four financial statements :

Owner’s Statement
Income Balance
Equity of Cash
Statement Sheet
Statement Flows

1-2 LO 5
Financial Statements

Question
Net income will result during a time period when:

a. assets exceed liabilities.

b. assets exceed revenues.

c. expenses exceed revenues.

d. revenues exceed expenses.

1-3 LO 5
Net income is needed to determine the
Financial Statements ending balance in owner’s equity.

SOFTBYTE
Income Statement
For the Month Ended September 30, 2017

Illustration 1-9
Financial statements and
their interrelationships

SOFTBYTE
Owner’s Equity Statement
For the Month Ended September 30, 2017

1-4 LO 5
SOFTBYTE
Owner’s Equity Statement
For the Month Ended September 30, 2017

Illustration 1-9
The ending
balance in SOFTBYTE
owner’s equity Balance Sheet
is needed in September 30, 2017
preparing the
balance sheet.

Illustration 1-9
Financial statements
and their
interrelationships

1-5
SOFTBYTE
Financial Balance Sheet
September 30, 2017

Statements

Balance sheet and


income statement
are needed to
prepare statement of
cash flows.
SOFTBYTE
Statement of Cash Flows
For the Month Ended September 30, 2017

Illustration 1-9
Financial statements
and their
interrelationships

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Income Statement

 Reports the revenues and expenses for a specific


period of time.

 Lists revenues first, followed by expenses.

 Shows net income (or net loss).


 Does not include
investment and
withdrawal transactions
between the owner and
the business in
measuring net income.

1-7 LO 5
Owner’s Equity Statement

 Reports the changes in owner’s equity for a specific


period of time.

 The time period is the same as that covered by the


income statement.

1-8 LO 5
Balance Sheet

 Reports the assets, liabilities, and owner's equity at a


specific date.

 Lists assets at the top, followed by liabilities and owner’s


equity.

 Total assets must equal total liabilities and owner's


equity.

 Is a snapshot of the company’s financial condition at a


specific moment in time (usually the month-end or year-
end).

1-9 LO 5
Statement of Cash Flows

 Information on the cash receipts and payments for a


specific period of time.

 Answers the following:


► Where did cash come from?

► What was cash used for?

► What was the change in the


cash balance?

1-10 LO 5
Financial Statements

Question
Which of the following financial statements is prepared as
of a specific date?

a. Balance sheet.

b. Income statement.

c. Owner's equity statement.

d. Statement of cash flows.

1-11 LO 5
DO IT! 5 Financial Statement Items

Presented below is selected information related to Flanagan Company


at December 31, 2017. Flanagan reports financial information monthly.
Equipment $10,000 Utilities Expense $ 4,000
Cash 8,000 Accounts Receivable 9,000
Service Revenue 36,000 Salaries and Wages Expense 7,000
Rent Expense 11,000 Notes Payable 16,500
Accounts Payable 2,000 Owner’s Drawings 5,000

(a) Determine the total assets of at December 31, 2017.


(b) Determine the net income reported for December 2017.
(c) Determine the owner’s equity at December 31, 2017.

1-12 LO 5
DO IT! 5 Financial Statement Items

Presented below is selected information related to Flanagan Company


at December 31, 2017. Flanagan reports financial information monthly.
Equipment $10,000 Utilities Expense $ 4,000
Cash 8,000 Accounts Receivable 9,000
Service Revenue 36,000 Salaries and Wages Expense 7,000
Rent Expense 11,000 Notes Payable 16,500
Accounts Payable 2,000 Owner’s Drawings 5,000

(a) Determine the total assets of at December 31, 2017.

The total assets are $27,000, comprised of


• Cash $8,000,
• Accounts Receivable $9,000, and
• Equipment $10,000.

1-13 LO 5
DO IT! 5 Financial Statement Items

Presented below is selected information related to Flanagan Company


at December 31, 2017. Flanagan reports financial information monthly.
Equipment $10,000 Utilities Expense $ 4,000
Cash 8,000 Accounts Receivable 9,000
Service Revenue 36,000 Salaries and Wages Expense 7,000
Rent Expense 11,000 Notes Payable 16,500
Accounts Payable 2,000 Owner’s Drawings 5,000

(b) Determine the net income reported for December 2017.

1-14 LO 5
DO IT! 5 Financial Statement Items

Presented below is selected information related to Flanagan Company


at December 31, 2017. Flanagan reports financial information monthly.
Equipment $10,000 Utilities Expense $ 4,000
Cash 8,000 Accounts Receivable 9,000
Service Revenue 36,000 Salaries and Wages Expense 7,000
Rent Expense 11,000 Notes Payable 16,500
Accounts Payable 2,000 Owner’s Drawings 5,000

(c) Determine the owner’s equity at December 31, 2017.

1-15 LO 5
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