1 01 Generally Accepted Accounting Principles Financial Statements

1. 01 Generally Accepted Accounting Principles – Financial Statements GAAP Power. Point #4

What are Financial Statements? �A formal record of the financial activities of a business � Includes four basic financial statements: ◦ Balance Sheet (Statement of Financial Position) ◦ Income Statement (Statement of Comprehensive Income) ◦ Statement of Cash Flows ◦ Statement of Changes in Equity

Balance Sheet � Reports a company’s financial position/condition at a given point in time � Reports on: ◦ Assets ◦ Liabilities and ◦ Equity � Details about cash in bank, amounts owed to creditors, and value of company’s assets.

Income Statement � Reports on a company’s income and expenses over a given period of time � Reports on ◦ Revenue (income) ◦ Expenses � Shows a company’s profit or loss over a given period of time

Statement of Cash Flows � Reports on a company’s cash flow activities into and out of the business from: ◦ Operating Activities ◦ Investing Activities and ◦ Financing Activities � Shows how changes in the balance sheet and income statement affect cash and cash equivalents

Statement of Equity � Reports the changes in the company’s equity throughout the reporting period � Reports ◦ profit or loss from the company, ◦ dividends paid, and ◦ other items that are debited/credited to retained earnings

Questions for Understanding/Discussion � Explain the purpose of the Equity. � Explain the purpose of the Flows. Balance Sheet. Income Statement of Cash