# BIWS 400 - Basic Accounting

Walk me through the 3 financial statements.
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Terms in this set (33)
The three financial statements are the income statement, balance sheet, and statement of cash flows.

The income statement gives the company's revenue and expenses, and goes down to net income, the final line item on the statement.

The balance sheet shows the company's assets (its resources) such as cash, inventory, and PP&E, as well as its liabilities (such as debt and accounts payable) and shareholder's equity. Assets must be equal to liabilities and shareholder's equity.

The cash flow statement begins with net income, adjust for non-cash expenses and working capital changes, and then lists cash flow from investing and financing activities; at the end, you see the company's net change in cash.
For the income statement, there is Revenue, COGS, SG&A, Operating Income (EBIT), Pre-tax income (EBT), and Net Income.

For the Balance Sheet, there is Cash, AR, Inventory, PP&E, AP, Accruals, Debt, and Shareholder's equity.

For the Statement of Cash Flows, there is NI, D&A, Stock-Based Compensation, changes in Operating Assets & Liabilities, CFO, CapEX, CFI, Sale/Purchase of Securities; Dividends Issued, and CFF
To tie the statements together, NI from the IS flows into Shareholder's Equity on the BS, and into the top line of the CFS.

Changes to BS items appear as working capital changes on the CFS, and investing and financing activities affect the BS items such as PP&E, Debt, and Shareholders' Equity. The Cash and Shareholders' Equity items on the BS act as "plugs," with Cash flowing in from the final line on the CFS.
For the IS, Operating Income would decline by $10 and assuming a 40% tax rate, NI would fall by$6.

For the CFS, the NI line on the top would fall by $6, but the$10 Depreciation would be added back because it is a non-cash expense. Since there are no other changes to the CFS, the overall Net Change in Cash would rise by $4. For the BS, PP&E would fall by$10 on the Asset side, but cash is up by $4. Therefore, the decrease in$6 on the Asset side would balance with the decrease in $6 on the debt and equity side because of the decrease in NI. *Confirm that the accrued compensation is now being recognized as an expense rather than just changing non-accrued to accrued compensation* Operating Expenses on the IS will go up by$10, Pre-Tax Income falls by $10, and Net Income falls by$6 (*assuming a %40 tax rate).

On the CFS, NI is down $6, and Accrued Compensation will INCREASE Cash Flow by$10, so overall CFO is up by $4 and the Net Change in Cash results in a$4 increase.

On the BS, Cash is up by $4 as a result, so Assets are up by$4. On the Debt and Equity side, since Accrued Compensation is a liability, Liabilities will be up by $10, but Retained Earnings will be down by$6 due to the decrease in NI, so both sides will balance.
There will be no changes to the IS because no revenue has been recognized.

On the CFS, since Inventory is an asset, your CFO will decrease by $10. There are no other changes in CFI or CFF so the Net Change in Cash will fall by$10.

On the BS under assets, Inventory will rise $10 but Cash will fall by$10 end everything to remain in balance.