Lesson 2-1 (The Financial Statements)

• Statement of Financial Position or Balance Sheet- shows the financial condition/ position of a business as of a given period. It consists of the assets, liabilities, and capital
• The Income Statement shows the result of operations for a given period. It consists of revenue, cost, and expenses.
• The statement of comprehensive income consists of the revenue, cost, and expenses and contains components of other comprehensive income (including reclassification adjustments) as follows: changes in revaluation surplus, gains and losses on benefit, plans, gains & losses (from investments, discontinued operations, on realization of assets, from foreign operations) finance costs, share of associates, and joint ventures under the equity method, tax expense, and all other operating and financial events affecting the owner's equity.
• Statement of Changes in Owner's Equity or Statement of Owner's Equity- shows the changes in the capital or owner's equity as a result of additional investment or withdrawals by the owner, plus or minus the net income for the year.
• Statement of Cash Flows- summarizes the cash receipts and cash disbursements for the accounting period. It summarizes the cash activities of the business by classifying cash inflows (receipts) and cash outflows (payments) into operating, investing, and financing activities. It shows the net increase or decrease of cash in given period and the cash balance at end of the period. This allows management to asses the business' ability to generate cash and project cash flows.
• Balance sheet accounts, namely assets, liabilities, and owner's equity, are classified as real or permanent accounts.
• Assets- economic resources owed by the business expected for future gain. They are property and rights of value by the business.
• Liabilities-include debts, obligations to pay, and claims of the creditors on the assets of the business.
• Owner's Equity or Capital- include the interest of the owners on the business; claims of the owners on the assets of the business; and the investment of the owner plus or minus the results of operations. It comes from two main sources- investment of owners and earnings of the business.
• What is the fundamental accounting equation?

  Assets=Liabilities + Owner's Equity