Financial Statements

Introduction Where does all money go? Where do we read “results”? Evaluate your/business financial health

Figure 2.1 Remember this?

The Stockholders’ Report The guidelines used to prepare and maintain financial records and reports are known as generally accepted accounting principles (GAAP). GAAP is authorized by the Financial Accounting Standards Board (FASB). The Sarbanes-Oxley Act of 2002, passed to eliminate the many disclosure and conflict of interest problems of corporations, established the Public Company Accounting Oversight Board (PCAOB), which is a not-for-profit corporation that overseas auditors.

The Stockholders’ Report (cont.) The PCAOB is charged with protecting the interests of investors and furthering the public interest in the preparation of informative, fair, and independent audit reports. Public corporations with more than $5 million in assets and more than 500 stockholders are required by the SEC to provide their stockholders with an annual stockholders report.

INCOME STATEMENT

Income Statement What is it? The income statement provides a financial summary of a company’s operating results during a specified period. Although they are prepared annually for reporting purposes, they are generally computed monthly by management and quarterly for tax purposes

Income Statement – P/L Statement Table 2.1 Bartlett Company Income Statements ($000)

Using an Income Statement to Trace Your Money Financial motion picture - tells you where your money has come from and where it has gone over some period of time.

Figure 2.4

Income: Where Your Money Comes From Income or cash inflows Expenditures or cash outflows Revenues and profit

Expenditures: Where Your Money Goes Cash transactions may not leave a paper trail. Variable or fixed expenditures. Control over expenditures

BALANCE SHEET

Balance Sheet What is Balance Sheet? A snapshot of your financial status at a particular time. A balance sheet has three components: Assets: items that are owned; measured at fair market value Liabilities: bills and obligations owed to creditors that must be paid in the future Net worth, Equity, Capital: the difference between assets and liabilities.

Balance sheet equation Assets (A) = Liabilities (L) + Equity (E) The balance sheet presents a summary of a firm’s financial position at a given point in time

Table 2.2a Bartlett Company Balance Sheets ($000)

Table 2.2b Bartlett Company Balance Sheets ($000)

Figure 2.2 – Personal Balance Sheet

CASH FLOWS STATEMENT

Cash Flows Statement Cash Flow Statement? The statement of cash flows provides a summary of the cash flows over the period of concern, typically the year just ended. This statement not only provides insight into a company’s investment, financing and operating activities, but also ties together the income statement and previous and current balance sheets.

Cash Flows The statement of cash flows provides a summary of the cash flows over the period of concern, typically the year just ended. This statement not only provides insight into a company’s investment, financing and operating activities, but also ties together the income statement and previous and current balance sheets.

Table 2.4 Bartlett Company Statement of Cash Flows ($000) for the Year Ended December 31, 2009

STATEMENT OF RETAINED EARNINGS

Statement of Retained Earnings The statement of retained earnings reconciles the net income earned and dividends paid during the year, with the change in retained earnings.

The Four Key Financial Statements Table 2.3 Bartlett Company Statement of Retained Earnings ($000) for the Year Ended December 31, 2009