2.1 FINANCIAL POSITION

ACCOUNTING The process of gathering and preparing financial information that provides accurate and useful records and enables decisions to be made.

1. 4 BASIC FINANCIAL INFORMATION REPORTS

4 BASIC FINANCIAL REPORTS Income statement Balance sheet Statement of cash flows Statement of retained earnings

Considered the most important financial statement INCOME STATEMENT Presents the revenues, expenses, and profits/losses generated during the reporting period Considered the most important financial statement

Revenue: the income generated by sale of goods/services (money earned) INCOME STATEMENT Revenue: the income generated by sale of goods/services (money earned) Expenses: the cost in an attempt to generate revenue (money spent) Profit/loss: Profit: Revenue > Expense Loss: Revenue < Expense

INCOME STATEMENT FOR APPLE https://finance.yahoo.com/quote/AAPL/financials?p=AAPL

STATEMENT OF CASH FLOWS Presents inflow and outflow of cash during the reporting period

STATEMENT OF RETAINED EARNINGS Presents changes in equity during the reporting period

Presents the assets, liabilities, and equity as of the reporting date. BALANCE SHEET Presents the assets, liabilities, and equity as of the reporting date.

2. BALANCE SHEET Before we get to the actually structure of balance sheet, we shall see the components that make up the balance sheet.

3 STEPS TO DETERMINE FINANCAIL POSITION Step 1: List and total all assets. Step 2: List and total all liabilities. Step 3: Calculate the owner’s equity.

ASSET Things that you own.

CHRIS TURNER’S FINANCIAL POSITION Cash $55 Skip equipment $300 Bank balance $215.50 Bicycle $185 Stereo $250 Total Assets $1005.50 Cash $55 Owed to Dad $200 Owed to Philip $80 Skip equipment $300 Bank balance $215.50 Library fines $12.50 Bicycle $185 Stereo $250

LIABILITIES Things that you owe.

CHRIS TURNER’S FINANCIAL POSITION Cash $55 Skip equipment $300 Bank balance $215.50 Bicycle $185 Stereo $250 Total Assets $1005.50 Owed to Dad $200 Owed to Philip $80 Library fines $12.50 Total Liabilities $292.50

The difference between assets and liabilities OWNER’S EQUITY The difference between assets and liabilities Also called capital, equity, and net worth

FUNDAMENTAL ACCOUNTING EQUATION A – L = OE A = L + OE

CHRIS TURNER’S FINANCIAL POSITION Cash $55 Skip equipment $300 Bank balance $215.50 Bicycle $185 Stereo $250 Total Assets $1005.50 Owed to Dad $200 Owed to Philip $80 Library fines $12.50 Total Liabilities $292.50

FUNDAMENTAL ACCOUNTING EQUATION AND CHRIS TURNER - L = OE 1005.50 292.50 713.00

3. REVIEW QUESTIONS & EXERCISES

KEY TERMS FOR TOMORROW Liquidity Accounts receivable Debtor Accounts payable Creditor