LESSON 12-2 Financial Records and Financial Statements Chapter 12 LESSON 12-2 Financial Records and Financial Statements Goals Identify several types of financial records needed by businesses. Describe the differences between an income statement and a balance sheet.

Key Terms financial records assets liabilities owner’s equity Chapter 12 Key Terms financial records assets liabilities owner’s equity balance sheet income statement

FINANCIAL RECORDS Chapter 12 Used to record and analyze the financial performance of a business. Types of records Asset records – buildings, equipment, money owed for each asset Depreciation records – identify the amount assets have decreased in value due to their age and use Inventory records – identify the type and number of products on hand for sale. Records of accounts – all purchases and sales made using credit Accounts payable: A/P identifies the companies from which the business made credit purchases Accounts receivable: A/R customers that made purchases using credit and their status

FINANCIAL RECORDS (cont’d) Chapter 12 Cash records – all cash received and spent Payroll records – information on all employees of the company, compensations, and benefits Tax records – taxes collected from employee wages (FIT, SS, Medicare), owed by the business (unemployment insurance, FIT, SS), and paid. Maintaining financial records All records must be accurate and up-to-date. Technology has made the job easier. Software completes mathematical calculations Records are updated immediately What-if comparisons

Chapter 12 >> C H E C K P O I N T How has the process of maintaining financial records been affected by technology?

Chapter 12 FINANCIAL STATEMENTS 3 most important elements of a company’s financial strength Assets – what a company owns Liabilities – what a company owes Owner’s equity (capital) – the value of the owner’s investment in the business

FINANCIAL STATEMENTS Chapter 12 Reports that sum up the financial performance of a business The balance sheet – report of a company’s assets, liabilities, owner’s equity, and net profit The income statement – a report of a company’s sales and profits for a specific period

FINANCIAL STATEMENTS The balance sheet Chapter 12 The balance sheet Usually prepared every 6 months or once a year Left side lists all assets and their values 2 common division of assets: Current assets: cash and items that be readily converted to cash (inventory and/or A/R) Long-term assets (fixed): assets with a lifespan > 1 year (land, buildings, equipment, expensive technology)

FINANCIAL STATEMENTS The balance sheet Chapter 12 The balance sheet Right side divided into 2 categories: Liabilities – amounts owed by the business to others Current liabilities: debt that can be paid in 1 year (bank loans, short-term loans) Long-term liabilities: debts that can be paid > 1 year (debts owed for land, buildings, and expensive equipment) Owner’s equity – the value of the business after liabilities are subtracted from assets.

Chapter 12

FINANCIAL STATEMENTS The Income Statement Chapter 12 The Income Statement Reports the revenue (income), expenses, and net income/loss from operations for a specific period Usually covers 6 months or a year Revenue – all income received by the business during the report period. Expenses – all costs incurred by the business during the report period.

Chapter 12

Chapter 12 >> C H E C K P O I N T What is the difference between a balance sheet and an income statement?