Class notes
BUS - A100 The Basic Financial Statements Notes
- Course
- Bus-a100
- Institution
- Indiana University
This is a comprehensive and detailed note on Chapter 2 ;the basic financial statements for BUS - A100. *Essential!! * For you!!
[Show more]
Content preview
Class 2 note: According to the GAAP and the IFRS, every company must present four financial statements,
first three are intertwined
o Balance sheet- “snapshot” of business at point in time, ending balance sheet of one
period becomes the beginning sheet of the next period
Cash +anything turned into cash +anything used up in one year
Assets=liabilities + stockholders’ equity
Assets-what we own
o Current assets: cash, accounts receivable, inventory, short-term
investments, prepaid(rent, insurance, etc)
Cash-most liquid so always listed at top of balance sheet
Accounts receivable-if you made a sale but customers
have not yet paid you
Inventory-what you bought intending to resell
Inventory (on the balance sheet) is reduced
and the “cost of goods sold” (on the income
sheet) is increased
Every time a company sells its inventory it must
make two balancing entries
o Record the sales by increasing revenue
and increasing either cash or accounts
receivable
o Transfer the cost of the inventory sold
from the balance sheet to the income
statement
Short term investments-
Prepaid-pay ahead of time and then expire
o Long term investments: stock, bond investments, etc
Not planning on converting into cash within the year
Stock-company bought stock of another company
o Fixed assets: equipment, buildings, land
Bought it to use in your business, can resell at some
point
You expect it will last longer than one year
o Intangible assets, patents, copyrights, trademarks, goodwill
Liabilities-what we owe
o Current liabilities: accounts payable, wages payable, utilities
payable, short term notes payable
Have to pay within Next year from day on balance sheet
Accounts payable-purchases of inventory
Wages payable-anything companies owe employees
Utilities-piped into business like electricity, gas, water
, Note payable-loan from the bank
o Long term liabilities: notes and bonds payable
Bonds-issue a bond to make your debt available to the
general public, usually sold in $1000 segments
There are bond exchanges like stock exchanges
Stockholders' equity-what we’re worth
o Common stock-every corporation has to have this, can also have
variety of preferred stock if they wish
Amount of money received when they originally
received the stock
o Retained earnings – net income, add up all net incomes from all
years company has been in business
All net incomes-dividends payed=retained earnings
Assets-liabilities=stockholders’ equity
o Income statement –covers a period of time, which is different than the balance sheet
Revenue-expenses=net income
Revenue-what we earn
Expenses –what we use up
Net income
Difference to balance sheet
Covers period of time where balance sheet is “snapshot”
Once you start the next period you start with clean slate, balance
sheet ending roles over to starting of next period
Inventory (on the balance sheet) is reduced and the “cost of goods
sold” (on the income sheet) is increased
Revenue-(operating expenses/net income from operations) +/- gain or loss on
sales of other assets=net income
o Statement of retained earnings
Beginning retained earnings + net income – dividends paid=ending retained
earnings
o Statement of cash flows-only analyzes the cash account
Financing-transactions with stockholders’ and bankers(except interest)
Investing-buying and selling land, buildings, and equipment
Operating-everything else
Beginning cash +/- cash flows from operations +/- cash flows from investing +/-
cash flows from financing = ending cash
Only include cash transactions the company made during period
o If no cash was received or paid, the transaction doesn’t go on this
statement
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller anyiamgeorge19. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $9.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
82191 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now