Supplementary 1

FINANCIAL STATEMENTS
 Agenda

1. Income Statement
2. Balance Sheet
3. Cash Flow Statement
 Income Statement

 One of the major financial statements used by accountants and business

owners

 Showing the profits and losses of a company over a period of time,

typically a month, quarter, or year following the company’s operations

 Showing a company’s ability to generate sales, manage expenses, and

create profits

 A predecessor to the other two core statements

 Income Statement

Source: CFI
 Income Statement
 Main Items:
– Revenues and Gains
 Revenues from operating activities
 Revenues or income from non-operating activities
 Gains (e.g., gain on the sale of long-term assets, gain on lawsuits)
– Expenses and Losses
 Expenses involved in operating activities
 Expenses from non-operating activities
 Losses (e.g., loss on the sale of long-term assets, loss on lawsuits)
– If the net amount of revenues and gains minus expenses and losses is positive, the bottom line of
the profit and loss statement is labeled as net income. If the net amount (or bottom line) is
negative, there is a net loss
 4. Income Statement

 Single-Step Income Statement

 Income Statement
Net Sales = Sales – Sales Deductions

 Multiple-Step

Income

Statement

THAOPUP 7
 Balance Sheet

 One of the three fundamental financial statements

 Providing a snapshot of what a company owns (total

assets) and owes (liabilities), as well as the amount
invested by shareholders (shareholders’ equity.

 Based on the fundamental equation:

Assets = Liabilities + Equity
 Expanded Accounting Equation

Assets = Liabilities + Equity

_ Owner _
Owner Capital
Withdrawals + Revenues Expenses

Owner's Equity
 Assets

Cash
Accounts Notes
Receivable Receivable
Resources
owned or
Vehicles controlled by Land
a company

Store Buildings
Supplies
Equipment
 Liabilities

Accounts Notes
Payable Payable

Creditors’
claims on
assets
Taxes Wages
Payable Payable
 Equity Accounts

Owner’s Owner’s
Equity Withdrawals

Equity
Accounts

Owner’s
Revenues Expenses
Capital
 Balance Sheet

 Double-entry Book-keeping
 The standard method for recording transactions

 Every financial transaction will involve at least two different accounts

 Transactions are recorded in terms of debits and credits. Since a debit

in one account offsets a credit in another, the sum of all debits must
equal the sum of all credits

 Easier to prepare accurate financial statements and detect errors

Assets = Liabilities + Equity

ASSETS LIABILITIES EQUITIES

Debit Credit Debit Credit Debit Credit

+ - - + - +
 Equity
Owner’s _ Owner's _ Expenses
Capital Withdrawals + Revenues

Owner’s Owner's Revenues Expenses

Capital Withdrawals

Debit Credit Debit Credit Debit Credit Debit Credit

- + + - - + + -
 Balance Sheet

 T-account: Visualizing the effect of recording a debit or

credit amount and the resulting balances of general
ledger accounts
 Balance Sheet

 Double-entry Book-keeping

 Debit refers to an entry on the left side of an account ledger

 Credit refers to an entry on the right side of an account ledger

1. Identify what accounts involve in the transaction

2. Categorise what type of these accounts

3. Define increase and decrease of these accounts

 Balance Sheet

 Double-entry Book-keeping
 Cash Flows Statement

 Showing how much cash is generated and used during a given time

period

Source: CFI
 Cash Flows Statement

 Cash inflows and outflows are observed for:

 Comparing the cash from operations to net income to help

company management, analysts, and investors gauge how

well a company is running its operations.

 Reflecting the actual amount of money the company receives

from its operations.

THANK YOU!