Gibson10e_ch02.pptVIP

Copyright 2007 by Thomson South-Western, a part of The Thomson Corporation. All rights reserved. Introduction toFinancial Statements and Other Financial Reporting Topics Forms of Business Entities The Financial Statements Income statement Statement of stockholders’ equity Balance sheet Statement of cash flows Support for the financial statements is provided by notes Income Statement Dated for a specific period Summarizes revenues and expenses Reports net income Excess of revenues over expense Net income increases retained earnings Statement of Stockholders’ Equity Dated for a specific period Reconciles beginning and ending balances of the stockholders’ equity accounts Capital Stock Retained Earnings Etc. Links the income statement and the balance sheet Balance Sheet Shows the financial condition of an entity as of a particular date Assets: the resources of the business Liabilities: the debts of the business Equity: the owners’ interest in the business The Accounting Equation: Statement of Cash Flows Covers the same period as the income statement Three sections Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Notes An integral part of the financial statements Required presentation Summary of significant accounting policies Contingent liabilities Subsequent events relating to conditions that existed at the balance sheet date Disclose and adjustment of the financial statements Subsequent events relating to conditions that did not exist at the balance sheet date Disclosure but no adjustment of the financial statements The Accounting Cycle Recording transactions Recording adjusting entries Preparing the financial statement Recording Transactions Internal or external event that causes a change in a company’s assets, liabilities, or stockholders’ equity Recorded in a journal (journal entry) Posted to general ledger accounts Double-entry system Debit: left side of an account Credit: right side of an account Debi