L2

• 4 financial statement

  A) Income Statement

  
• 4 financial statement

  A) balance sheet

  
• 4 financial statement

  A) cash flow

  
• 4 financial statement

  A) owners equity

  
• what statement

  A) income statement

  
• cash flow statement

  A) operating

  B) investing

  C) financing

  
• Income statement —includes the revenues the firm has earned, the expenses it has incurred

  to earn those revenues, and the profit it has earned over a specific period of time, usually a

  quarter of a year or a full year.
• Balance sheet — contains information as of the date of its preparation about the firm’s assets

  (everything of value the company owns), liabilities (the company’s debts), and stockholders’

  equity (the money invested by the company owners). As such, the balance sheet is a snapshot

  of the firm’s assets, liabilities, and stockholders’ equity for a particular date.
• Cash flow statement —reports cash received and cash spent by the firm over a specific period

  of time, usually a quarter of a year or a full year.
• Statement of the owners’ equity—provides a detailed account of activities in the firm’s

  common and preferred stock accounts and its retained earnings account and changes to

  shareholders’ equity that do not appear in the income statement.
• An income statement, also called a profit and loss statement, measures the profits generated by a

  firm over a given time period (usually a year or a quarter). In its most basic form, the income statement

  can be expressed as follows:

  revenue( or sales) - expenses = profits
• Revenues represent the sales for the period. Profits are the difference between the firm’s revenues

  and the expenses incurred to generate those revenues for the period. Recall that revenues are

  determined following the revenue recognition principle, and expenses are then matched to these

  revenues using the matching principle. income statement
• cash flow statement is a report, like the income statement and balance sheet, that firms use to

  explain changes in their cash balances over a specific period of time (i.e., one (1) year or one (1)

  quarter) by identifying all of the sources and uses of cash for that period. Thus, the focus of the cash

  flow statement is the change in a firm’s cash balance for the period covered by the statement:
• We can find the information needed to prepare the cash flow statement in the income statement for

  the period and the beginning and ending balance sheets for the period. The information from the

  income statement is inserted directly into the cash flow statement, but the information from the

  balance sheet does not transfer directly;
• source of cash is any activity that brings cash into the firm, such as when the firm sells goods and

  services or sells an old piece of equipment that it no longer needs. Use of cash is any activity that

  causes cash to leave the firm, such as paying taxes or purchasing a new piece of equipment.
• The cash flow statement format differs slightly from the format of the simple analysis of sources and

  uses of cash we just completed. However, it utilizes the same information. Specifically, in the cash

  flow statement, sources and uses of cash are classified into one of three (3) broad categories: Operating activities, Investment activities, Financing activities
• Operating activities represent the company’s core business, including sales and expenses

  (basically any cash activity that affects net income for the period).
• Investment activities include the cash flows arising from the purchase and sale of long-term

  assets such as plant and equipment.
• Financing activities represent changes in the firm’s use of debt and equity. The latter includes

  the sale of new shares of stock, the repurchase of outstanding shares, and the payment of

  dividends.