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The Financial StatementsThe Financial Statements
Presentations for Chapter 2 by Glenn Owen
Key PointsKey Points The three basic activities of a business and how they
are reflected in the financial statements. The balance sheet, income statement, statement of
retained earnings, and statement of cash flows and how these financial statements are used.
Fruit Tree AnalogyFruit Tree Analogy
Financing Activities
Investing Activities
Operating Activities
Trunk/Branches
Roots
Fruit
The Balance SheetThe Balance SheetAssetsLiabilitiesStockholders’ equity
AssetsAssetsCurrent assets
– Cash– Short-term investments– Accounts receivable– Inventory– Prepaid expenses
Long-term investmentsProperty, plant, and equipmentIntangible assets
LiabilitiesLiabilitiesCurrent liabilities
– Accounts payable– Wages payable– Interest payable– Short-term notes payable– Current maturities of
long-term debt– Deferred revenues– Other payables
Long-term liabilities
Stockholders’ EquityStockholders’ EquityContributed capitalRetained earnings
The Income StatementThe Income Statement Operating revenues
– Sales – Fees earned– Other revenues
Operating expenses– Cost of goods sold– Wage expense– Rent expense– Selling expense– Depreciation expense– Amortization expense– Other expenses
The Statement The Statement of Retained Earningsof Retained Earnings
Beginning retained earnings balance Plus: Net income Less: Dividends = Ending retained earnings balance
The Statement of Cash FlowsThe Statement of Cash Flows Cash flows from operating activities:
– Collections from sales, rent, interest, etc.– Cash paid to suppliers and employees, and for rent, selling
activities, interest, and taxes etc. Cash flow from investing activities:
– Proceeds from sale of investment securities, property, etc. – Purchase of investment securities, property, etc.
Cash flow from financing activities:– Proceeds from issuance of notes, debt,
sale of equity, etc.– Payments on notes, debt, dividends, etc.
Relationships Among the Relationships Among the Financial StatementsFinancial Statements
IncomeStatement
Statement ofRetainedEarnings
EndingBalance Sheet
Statement ofCash Flows
BeginningBalance Sheet
Cash from the Beginning Balance Sheet is included in the Statement of Cash
Flows.
Net income from the Income Statement is included in the Statement of Retained Earnings
Retained earnings from the Beginning Balance Sheet is included in the Statement of Retained Earnings
Ending cash from the Statement of Cash Flows is included in the Ending Balance Sheet.
Ending retained earnings from the Statement of Retained Earnings is included in the Ending Balance Sheet.
C O P Y R I G H T
C o p y r i g h t © 2 0 0 3 , J o h n W i l e y & S o n s , I n c . A l l r i g h t s r e s e r v e d .R e p r o d u c t i o n o r t r a n s l a t i o n o f t h i s w o r k b e y o n d t h a t p e r m i t t e d i n S e c t i o n 1 1 7 o f t h e 1 9 7 6 U n i t e d S t a t e s C o p y r i g h t A c t w i t h o u t t h ee x p r e s s w r i t t e n p e r m i s s i o n o f t h e c o p y r i g h t o w n e r i s u n l a w f u l . R e q u e s t f o r f u r t h e r i n f o r m a t i o n s h o u l d b e a d d r e s s e d t o t h e P e r m i s s i o n s D e p a r t m e n t , J o h n W i l e y & S o n s , I n c . T h e p u r c h a s e r m a y m a k e b a c k - u p c o p i e s f o r h i s / h e r o w n u s e o n l y a n d n o t f o r d i s t r i b u t i o n o r r e s a l e . T h e P u b l i s h e r a s s u m e s n o r e s p o n s i b i l i t yf o r e r r o r s , o m i s s i o n s , o r d a m a g e s , c a u s e d b y t h e u s e o f t h e s e p r o g r a m s o r f r o m t h e u s e o f t h e i n f o r m a t i o n c o n t a i n e d h e r e i n .