Statement of Stockholders' EquitySummarizes the changes in stockholders' equity over an interval of time
Common Stock (External Source) + Retained Earnings (Internal Source)Balance SheetPresents the financial position of the company on a particular date
Financial Position: Resources (Assets) = Claims to Resources (Liabilities & Stockholders' Equity)Statement of Cash FlowsMeasures activities involving cash receipts and cash payments over an interval of time
Parts of Statement of Cash Flows
Operating cash flows: Cash transactions involving revenue and expense activities
Investing cash flows: Cash transactions for the purchase and sale of investments and long-term assets
Financing cash flows: Cash transactions with lenders and stockholdersIncome Statementa report of revenue, expenses, and net income or loss from operations for a specific period
Revenues - Expenses = Net Income
If revenues>expenses, then net income
If revenues<expenses, then net loseComponents of Annual Report• Financial statements
• Management discussion and analysis: Management's views on significant events, trends, and uncertainties relating to company's operations and recourses.
• Notes to financial statements: Additional information to explain the information presented in the financial statements or to provide information not included in the financial statements
• Auditor's reportAuditorsTrained individuals to express a professional opinion of the extent to which financial statements are prepared in compliance with GAAP; adds credibility to the financial statementsFunctions of Financial Accounting1. Measure the business activities of a company
- Record transactions
2. Communicate those measurements to external parties for decision-making purposes
- Prepare financial statementsSix Steps in Measuring External TransactionsStep 1: Use source documents to identify accounts affected by an external transaction.
Step 2: Analyze the impact of the transaction on the accounting equation.
Step 3: Assess whether the transaction results in a debit or credit to account balances.
Step 4: Record the transaction in a journal using debits and credits.
Step 5: Post the transaction to the general ledger.
Step 6: Prepare a trial balance.AccountA record that summarizes all the transactions pertaining to a single item in the accounting equation
Asset Accounts: Cash, supplies, equipment
Liability Accounts: Accounts payable, salaries payable, utilities payable, taxes payable
Stockholders' Equity Accounts: Common stock and retained earningsRelationship between assets, liabilities, and stockholders' equityIf assets increase, then liabilities or stockholders' equity increases by same amount; same could be said if it decreasesRetained Earnings Equationrevenues - expenses - dividends
Revenues increase retained earnings
Expenses decrease retained earnings
Dividends decrease retained earningsDeferred RevenueA liability created when a business collects cash from customers in advance of completing a service or delivering a product; company owes a service even though it already collected the customer's cash
An adjusting entry is needed to decrease the liability to its remaining amount owed and recognize revenueDebitIncrease in assets, expense or dividends accounts
Decrease in liability, revenue or equity accounts
Left side of a ledger accountCreditIncreases liability, revenue or equity accounts
Decreases asset, expense or dividends accounts
Right side of a ledger accountAccrued ExpensesWhen a company has used costs in the current period, but the company hasn't yet paid cash for those costs
An adjusting entry is needed to record the liability to be paid and recognize the cost as an expense