Chapter One Elements of Financial Statements

Market Allocation Customers Investors Creditors Restaurant + + = Stakeholders needing information for decisions $$$$$$$

Accounting Process of compiling financial information into a format that can be used by decision makers

Formation of Accounting Federal Government SEC Securities & Exchange Commission FASB Financial Accounting Standards Board GAAP Generally Accepted Accounting Principles Financial Statements Stakeholders AICPA American Institute of Accountants

Financial Statements Agreed upon way to communicate financial information Makes it easier to compare companies and from one year to the next Reporting entities: –Sole proprietorship –Partnership –Corporation

Balance Sheet Assets: Cash $15,000 Food & liquor inventory 10,500 Equipment 25,000 Total Assets $ 50,500 Liabilities Equals Accounts payable $ 2,500 Loan (note payable) 17,000 Total Liabilities $ 19,500 Stockholders' equity Plus Common stock $10,000 Retained earnings 21,000 Total Stockholders' Equity $ 31,000

Statement of Changes in Stockholders’ Equity Common stock $ 10,000 Beginning retained earnings $ - Plus: net income 24,000 Less: dividends (3,000) Ending retained earnings 21,000 Total stockholders' equity $ 31,000

Income Statement Revenue $100,000 Expenses: Food 10,000 Liquor 5,000 Wages 30,000 Rent 25,000 Utilities 6,000 Total expenses (76,000) Net Income $ 24,000

Articulation How financial statements flow together Assets: Cash $15,000 Food & liquor inventory 10,500 Equipment 25,000 Total Assets $ 50,500 Liabilities Accounts payable $ 2,500 Loan (note payable) 17,000 Total Liabilities $ 19,500 Stockholders' equityPlus Common stock $10,000 Retained earnings 21,000 Total Stockholders' Equity $ 31,000 Common stock $ 10,000 Beginning retained earnings $ - Plus: net income 24,000 Less: dividends (3,000) Ending retained earnings 21,000 Total stockholders' equity $ 31,000 Revenue $100,000 Expenses: Food 10,000 Liquor 5,000 Wages 30,000 Rent 25,000 Utilities 6,000 Total expenses (76,000) Net Income $ 24,000 Balance Sheet Statement of Changes Income Statement

10 Elements of Financial Statements Assets Liabilities Equity (shareholders) Contributed capital (stock) Revenue (sales) Expenses Distributions (dividends) Net Income (revenue less expenses) Gains (non-operating income) Losses (non-operating expenses)