Financial

Statements
Principles of Accounting
Objectives

• Define financial statements

• Examples and definition of: Balance Sheet, Statement of Owner

of equity, Income statement, Cashflow Statement.

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Financial statement

• Financial statements are reports prepared by a company's

management to present the financial performance and position
at a point in time. A general-purpose set of financial
statements usually includes a balance sheet, income
statements, statement of owner's equity, and statement of
cash flows.

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 Freddie Rodriguez’s
Trial Balance as at Dec, 31th 2018
Name of Account Debit Credit
Cash 120,000
Accounts Receivable 80,000
Supplies 4,000
Land 13,000
Accounts payable 5,400
Capital 128,000
Drawings 20,000
Fees Earned 211,000
Unearned Fees 3,000
Salaries Expense 50,000
Rent Expense 28,000
Auto Expense 16,600
Supplies Expense 8,000
Miscellaneous 7,800 04/30/2020
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Total 347,400 347,400

Income Statement

• Provides a summary of all the revenues & expenses for a specific

period of time, such as a month or a year
• Matching principle: Is the concept used by matching the
expenses incurred during a period with that of the expenses
generated
• The excess of the revenues over the expenses is known as NET
INCOME or NET PROFIT or EARNINGS. If the expenses exceed the
revenues, then it is considered as a NET LOSS.

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 Freddie Rodriguez’s
Income statement
For year ended Dec , 31th 2018
$ $
Revenue
Fees Earned 211,000

Less Expenses

Salaries Expense 50,000

Income Rent Expense

Auto Expense
28,000
16,600

Statement Supplies Expense

Miscellaneous
8,000
7,800
Expense
Total Expense (110,400)

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Net Profit 100,600 04/30/2020
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Statement of Owner’s Equity

• reports the events that increased or decreased stockholder’s

equity over the course of the accounting period
• lists the net income or loss for the period along with the owners’
contributions or withdrawals during the period.
• The ending equity account balance is always carried forward to
the following year and becomes the future year’s beginning
balance

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Statement of Owner’s Equity

Freddie Rodriguez’s
Statement of Owner’s equity
For the year ended Dec , 31 2018
$ $
Beginning Capital 128,000
Net Profit 100,600

Withdrawals:
Drawings (20,000)

Increase in Owner’s 80,600

Equity 04/30/2020
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Ending Capital 208,600
Balance Sheet

• Is a statement of the assets, liabilities, and capital of a business

or other organization at a particular point in time
• The balance sheet provides a snapshot of a company's
accounts at a given point in time.
• The balance sheet along with the income and cash flow
statement, is an important tool for owners

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 Horizontal Vertical

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Balance sheet

Freddie Rodriguez’s
Balance Sheet
As of Dec , 31 2018
Assets $ Liabilities $
Cash 120,000 Accounts 5,400
Payable
Supplies 4,000 Unearned Fees 3,000
Land 13,000
Account 80,000
Receivable
Total Liabilities 8,400
Owner's Equity 208,6000
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Total Assets 217,000 Total liabilities 217,000

Cash Flow Statement

• statement that shows how changes in balance sheet accounts

and income affect cash and cash equivalents, and breaks the
analysis down to operating, investing, and financing activities

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 Cash Received as Initial investment 120,000
Cash Received from customers on account 55,000
Purchased Land 13,000
Paid Creditors a total of 1,500
Cash Received from Service Provided 65,900
Received additional investment 8,000
Customers paid in advance for service 3,000
Received cash from the sale of motor Vehicle 5,000
Paid Salaries Expense 50,000
Paid Rent Expense 28,000
Paid Auto Expense 16,600
Paid Miscellaneous Expense 7,800
Owners withdrawal 20,000

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 Cash flow for O.
Activities
Cash Received from $123,900
Customers
Cash Payments (103,900)

Net Cash Flow for 20,000

O.A

Cash Flow
Cash flow for
Investing Activities
Sales of A.M 5000
Purchase of land (13,000)
Net cash flow for I.A (8,000)

Cash flow for F.A

Additional 8,000
Investment
Drawing (20,000)
Net cash for F.A (120,000)

No increase or 0 04/30/2020
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value
Opening Cash 120,000
 Activity (Questions)

1. What Is the income statement?

2. What are the two formats for the balance sheet?
3. How is a Cashflow statement calculated?

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