1. 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.

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

3. 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

4. FINANCIAL RECORDS (cont’d)
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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

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

6. 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

7. 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

8. FINANCIAL STATEMENTS The balance sheet
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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)

9. 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.

10. Chapter 12

11. FINANCIAL STATEMENTS The Income Statement
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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.

12. Chapter 12

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