FINANCIAL STATEMENTS Chapter 7

Chapter 7 Goals Define/explain accounting terms and concepts related to financial statements. Prepare an Income Statement, and analyze it using component percentages. Prepare a Balance Sheet.

Standards Addressed: 1.1.11F – Identify, define, and apply key vocabulary 1.1.11D – Identify, describe, and analyze key concepts in chapter. 2.2.11A – Develop and use computation concepts with real numbers.

Vocabulary Income Statement – a financial statement showing the revenue and expenses for a fiscal period. Net Income – the difference between total revenue and expenses when total revenue is greater. Net Loss – the difference between total revenue and expenses when total expenses is greater. Going Concern - the expectation that a business will stay in operation indefinitely. Stakeholders – any person(s) or groups affected by an action.

Vocabulary Adequate Disclosure – all necessary info. Included to understand a business’s financial condition. Accounting Cycle – when financial statements are always prepared at the end of a fiscal period. Balance Sheet – a financial statement that reports assets, liabilities and owner’s equity on a specific date. Accounting Equation – an equation showing the relationship among assets, liabilities, and owner’s equity.

THE INCOME STATEMENT Purpose: indicates financial progress of a business – net income or net loss Used to report over a specific fiscal period Parts: heading, revenue, expenses, net income or net loss Source: Income Statement section of the work sheet

INCOME STATEMENT Matching Principle – (aka Matching Expenses with Revenue) – revenue earned and expenses incurred to earn are reported in the same fiscal period. Component %: The % relationship between one financial statement item and the total revenue Sales is ALWAYS 100% Net Income (Loss) or Total Expenses / Total Revenue

INCOME STATEMENT

THE BALANCE SHEET Purpose: indicates financial condition of a business on a specific date Reports: A = L + OE Parts: heading, assets, liabilities, and OE Source: Balance Sheet section of the work sheet Total OE = Capital + Net Income – Drawing Total OE = Capital – Net Loss – Drawing

BALANCE SHEET

Balance Sheet – reported in detail