Chapter 01 - Financial Statements and Business Decisions

HANDOUT 1 – 1

TEAM PROJECT – OVERVIEW OF FINANCIAL STATEMENTS

Complete the following table.

Financial Statement Purpose Equation

Income Statement Reports the revenues less the

expenses (financial performance of
the business) during the accounting Revenues - Expenses = Net
period. income

Statement of Stockholders’ Reports the changes in each of the company’s

Equity stockholders’ equity accounts, including the
Beginning balance + Increases -
change in the retained earnings balance caused
by net income and dividends, during the Decreases = Ending balance
reporting period.

Balance Sheet Reports the financial position

(amount of assets, liabilities, and Assets = Liabilities + Stockholders’
stockholders’ equity) of an Equity
accounting entity at a point in time.

Statement of Cash Flows

Reports inflows (receipts) and

+/- CFO +/- CFI +/- CFF = Change
outflows (payments) of cash during
in Cash
the accounting period in the
Change in cash + Beginning cash
categories of operating, investing,
= Ending cash
and financing.

RELATIONSHIPS AMONG FINANCIAL STATEMENTS

Then, answer the following questions:

1. How does the income statement tie to the statement of stockholders’ equity?
Net income, from the income statement, is a component in determining ending retained earnings on the statement of
stockholders’ equity.

2. How does the statement of stockholders’ equity tie to the balance sheet?

The amount of ending retained earnings is then reported on the balance sheet.

3. How does the balance sheet tie to the statement of cash flows?

Cash on the balance sheet is equal to the ending cash reported on the statement of cash flows.

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Chapter 01 - Financial Statements and Business Decisions

HANDOUT 1 – 2

BASIC BALANCE SHEET ELEMENTS

Match each account to its classification on the balance sheet:

Stockholders’
Account Asset Liability Equity
a. Notes Payable
b. Cash

c. Common Stock

d. Inventories
e. Accounts Receivable

f. Accounts Payable
g. Property, Plant, &
Equipment

h. Notes Payable

i. Retained Earnings

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Chapter 01 - Financial Statements and Business Decisions

HANDOUT 1 – 3

STATEMENT OF CASH FLOWS

Match each activity to its classification on the statement of cash flows:

Activity Operating Investing Financing

a. Cash paid to suppliers

and employees

b. Cash paid to purchase

equipment and other
assets

c. Cash paid for dividends

d. Cash collected from
customers
e. Cash received from
selling equipment and
other long-term assets
f. Cash paid on notes
payable and other
financing

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Chapter 01 - Financial Statements and Business Decisions

HANDOUT 1 – 4

COMPONENTS OF FINANCIAL STATEMENTS

Match each account, element, or transaction to the financial statement(s) on which it would be reported.

Statement of
Income Stockholders’ Statement of
Account or Element Statement Equity Balance Sheet Cash Flows
a. The amount of cash
paid for equipment

b. Cash

c. Notes Payable
d. Common Stock

e. Inventories

f. Cost of Goods Sold

g. The amount of cash
collected from (1)
customers
h. Accounts
Receivable

i. Notes Payable
j. Marketing Expense
k. Property, Plant, &
Equipment
l. Dividends paid to
stockholders

m. Net Income (2)

(1) Reported on the statement of cash flows when the direct method is used
(2) reported on the statement of cash flows when the indirect method is used

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Chapter 01 - Financial Statements and Business Decisions

HANDOUT 1 – 5

ACRONYMS
Professional Organizations Acronyms
American Accounting Association
American Institute of Certified Public Accountants
Financial Accounting Foundation
Financial Accounting Standards Board
Governmental Accounting Standards Board
Internal Accounting Standards Board
Institute of Management Accountants
National Association of State Boards of Accountancy
Federal Government Agencies
Federal Communications Commission
Federal Deposit Insurance Corporation
Federal Trade Commission
General Accounting Office
Internal Revenue Service
Public Company Accounting Oversight Board
Small Business Administration
Securities & Exchange Commission
Standards
Accounting Principles Board (1959-1973)
Accounting Research Bulletins (1939-1959)
Accounting Series Release (SEC)
Generally Accepted Accounting Principles
Generally Accepted Auditing Standards
International Financial Reporting Standards
Statement on Auditing Standards (AICPA)
Statement of Financial Accounting Concepts (FASB)
Statement of Financial Accounting Standards (FASB)
Selected Professional Certifications
Certified Public Accountant
Certified Fraud Examiner
Certified Internal Auditor
Certified Management Accountant
Certified Public Accountant
Miscellaneous Terms in Accounting, Business, and Economics
Consumer Price Index
Continuing Professional Education
Earnings Per Share
Federal Insurance Contributions Act
Federal Unemployment Tax Act
Gross National Product

1-21
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Education.
Chapter 01 - Financial Statements and Business Decisions

HANDOUT 1 – 6

ACRONYMS
Professional Organizations Acronyms
AAA
AICPA
FAF
FASB
GASB
IASB
IMA
NASBA
Federal Government Agencies
FCC
FDIC
FTC
GAO
IRS
PCAOB
SBA
SEC
Standards
APB
ARBs
ASR
GAAP
GAAS
IFRS
SAS
SFAC
SFAS
Selected Professional Certifications
CPA
CFE
CIA
CMA
CPA
Miscellaneous Terms in Accounting, Business, and Economics
CPI
CPE
EPS
FICA
FUTA
GNP

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Education.