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Fma 02
Fma 02
BASIC FINANCIAL
STATEMENTS
TWO
2.1 Introduction to Financial Statements
Companies prepare interim financial statements
and annual financial statements.
2012
X
ABH Consultancy Services ASA/JU/Accounting & Finance/2013
(Introduction to Financial, Cont’d)
Balance Sheet
Describes
where the
Income Statement enterprise
stands at a
Statement of Cash Flows
specific date.
Balance Sheet
Income Statement
Depicts the
revenue and
Statement of Cash Flows expenses for a
designated
period of time.
Revenues Expenses
result in result in
positive negative
cash flow. cash flow.
Balance Sheet
Income Statement
Net income (or
net loss) is
Statement of Cash Flows simply the
difference
between
revenues and
expenses.
Balance Sheet
Income Statement
A business
entity is
Lucy Travel separate from
Agency the personal
affairs of its
owner.
Cost Principle
These accounting
Stable-Dollar principles support Going-Concern
Assumption cost as the basis Assumption
for asset valuation.
Objectivity
Principle
ABH Consultancy Services ASA/JU/Accounting & Finance/2013
Liabilities
Lucy Travel Agency
Balance Sheet
Dec. 31, 2012
Assets Liabilities & Owners' Equity
CashLiabilities are Br. 22,500 Liabilities:
debts that
Notes receivable
Accounts receivable
10,000
60,500
Notes payable
Accounts payable
Br. 41,000
36,000
represent negative
Supplies 2,000 Salaries payable 3,000
Land 100,000 Total liabilities Br. 80,000
future cash flows
Building 90,000 Owners' Equity:
for the enterprise.
Office equipment 15,000 Capital stock
Retained earnings
150,000
70,000
Total Br.300,000 Total Br300,000
Land
owner’s claim to
Supplies 2,000
100,000
Salaries payable
Total liabilities
3,000
Br. 80,000
the assets of the
Building 90,000 Owners' Equity:
Office equipment 15,000 Capital stock 150,000
business. Retained earnings 70,000
Total Br300,000 Total Br300,000
Changes in Owners’
Equity
•Owners’ •Payments
Investments to Owners
•Revenues •Expenses
Cash
Service
Accts.
for the
Tools &
month ending
Notes
May
Accts.
31,
Capital
2013.
Retained
+ Rec. + Equip. + Truck = Payable + Pay. + Stock + Earnings
May 1 $ 8,000 $ 8,000
Balances $ 8,000 $ 8,000
May 2 (2,500) These transactions
$ 2,500
Balances $ 5,500 $ 2,500 $ 8,000
May 8 (2,000) impact
$ 15,000 the
$ 13,000
Balances $ 3,500 $ 2,500Statement
$ 15,000 of Cash
$ 13,000 $ 8,000
May 11 300 $ 300
Balances $ 3,500 $ 2,800 Flows.
$ 15,000 $ 13,000 $ 300 $ 8,000
May 18 $ 150 (150)
Balances $ 3,500 $ 150 $ 2,650 $ 15,000 $ 13,000 $ 300 $ 8,000
May 25 75 (75)
Balances $ 3,575 $ 75 $ 2,650 $ 15,000 $ 13,000 $ 300 $ 8,000
May 28 (150) (150)
Balances $ 3,425 $ 75 $ 2,650 $ 15,000 $ 13,000 $ 150 $ 8,000
May 29 750 These transactions 750
Balances $ 4,175 $ 75 $ 2,650 $ 15,000 $ 13,000 $ 150 $ 8,000 $ 750
May 31 (50) impact the Income (50)
Balances $ 4,125 $ 75 $ 2,650
Statement.
$ 15,000 $ 13,000 $ 150 $ 8,000 $ 700
Beginning End of
of period Time period
Balance Balance
Sheet Sheet
Income Statement
Statement of Cash Flows
ABH Consultancy Services ASA/JU/Accounting & Finance/2013
2.6 Forms of Business Organizations
Sole
Partnership Corporation
Proprietorship
Partner’s Equity
Partnership Abel Gidey, Capital Br. 4,000
Alemu A/Mecha, Capital 4,000
Total Partners’ Equity Br. 8,000
Owners' equity
Capital stock Br. 7,000
Corporation
Retained earnings 1,000
Total stockholders' equity Br. 8,000
ABH Consultancy Services ASA/JU/Accounting & Finance/2013
2.8 The Use of Financial Statements by
Outsiders
Two concerns:
Creditors Solvency
Profitability
Investors
ABH Consultancy Services ASA/JU/Accounting & Finance/2013
2.9 The Need for Adequate Disclosure