chapter4 basic finacial statements.ppt

Financial Statements The balance sheet (or statement of financial position) The income statement (or profit and loss statement) The statement of changes in the owners equity The statement of cash flows Forms of balance sheet ( ) : the balance sheet displays the assets on the top, and below it are liabilities and owner’s equity in that order. ( ) : the balance sheet presents assets on the left column and liabilities and owner’s equity on the right column. The Forms of Income Statement Single-step form---It gathers all the revenue together , then deducts all the expenses from the revenue to get net income. Multiple-step form---It presents gross profits, operating income, income before taxes, and net income. Purpose of Financial Statements Financial statements are a structured financial representation of the financial position of and the transactions undertaken by an enterprise. The objective of general purpose financial statements is to provide information about the financial position, performance and cash flows of an enterprise that is useful to a wide range of users in making economic decisions. Financial statements also show the results of managements stewardship of the resources entrusted to it. To meet this objective, financial statements provide information about an enterprises: (a) assets; (b) liabilities; (c) equity; (d) income and expenses, including gains and losses; and (e) cash flows. This information, along with other information in the notes to financial statements, assists users in predicting the enterprises future cash flows and in particular the timing and certainty of the generation of cash and cash equivalents. General purpose financial statements General purpose financial statements are those intended to meet the needs of users who are not in a position to demand reports tailored to meet their specific information needs. General purpose financial statements include those that are presented separately or w