1. Introduction to Financial Statements
Chapter 1
Introduction to Financial Statements

2. A Word About My PP
My PP is designed to simplify the chapter in just a few slides
WileyPlus has excellent PP and other supplemental resources—please take a look and use these resources—they are free

3. Users of Accounting Information
External Users
Primarily investors and creditors
But also, government agencies, labor unions and others
Internal Users
Users within the business, such as managers

4. Accounting Equation Assets=Liabilities + Stockholders’ Equity
Assets are economic resources
Liabilities are creditor’s claims to assets
Stockholders’ equity represents stockholders’ claims to assets

5. Two Types of SE Accounts
Contributed capital—owners’ investments
Retained earnings—earnings generated by the business

6. 4 Financial Statements
Income statement. Revenues-expenses=net income. Over a period of time.
Retained earnings statement. BRE + NI – Dividend=ERE. Remember dividends are not an expense used to generate revenue so don’t belong. on income statement. Over a period of time.
Balance sheet. Assets = Liabilities + Stockholders’ Equity. At a point in time.
Statement of Cash Flows. Cash flows from operating, investing and financing activities. Over a period of time

7. Income Statement

8. Retained Earnings Statement

9. Balance Sheet

10. Statement of Cash Flows

11. Statement of Cash Flows

12. Interrelationships of Statements
Net income on IS; goes to SRE, and is added to beginning retained earnings
Ending retained earnings on the SRE will also appear on the balance sheet as a component of Stockholders’ Equity
On comparative balance sheets, the difference between the cash balances is explained by the statement of cash flows

13. Annual Report
Contains audited financial statements, notes to the financial statements. Notes are important, contain description of significant accounting policies, and also more detail
Also contains management discussion and analysis

14. FINANCIAL STATEMENTS Review Question
Which of the following financial statements is prepared as of a specific date?
Balance sheet.
Income statement.
Retained earnings statement.
Statement of cash flows.
LO 3

15. FINANCIAL STATEMENTS Review Question
Net income will result during a time period when:
assets exceed liabilities.
assets exceed revenues.
expenses exceed revenues.
revenues exceed expenses.
LO 3