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FINANCIAL STATEMENTS

FINANCIAL STATEMENTS. Chapter 7. Chapter 7 Goals. Define/explain accounting terms and concepts related to financial statements. Prepare an Income Statement, and analyze it using component percentages. Prepare a Balance Sheet. Standards Addressed:.

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FINANCIAL STATEMENTS

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  1. FINANCIAL STATEMENTS Chapter 7

  2. Chapter 7 Goals • Define/explain accounting terms and concepts related to financial statements. • Prepare an Income Statement, and analyze it using component percentages. • Prepare a Balance Sheet.

  3. Standards Addressed: • 1.1.11F – Identify, define, and apply key vocabulary • 1.1.11D – Identify, describe, and analyze key concepts in chapter. • 2.2.11A – Develop and use computation concepts with real numbers.

  4. Vocabulary • Income Statement – a financial statement showing the revenue and expenses for a fiscal period. • Net Income – the difference between total revenue and expenses when total revenue is greater. • Net Loss – the difference between total revenue and expenses when total expenses is greater. • Going Concern - the expectation that a business will stay in operation indefinitely. • Stakeholders – any person(s) or groups affected by an action.

  5. Vocabulary • Adequate Disclosure – all necessary info. Included to understand a business’s financial condition. • Accounting Cycle– when financial statements are always prepared at the end of a fiscal period. • Balance Sheet – a financial statement that reports assets, liabilities and owner’s equity on a specific date. • Accounting Equation – an equation showing the relationship among assets, liabilities, and owner’s equity.

  6. THE INCOME STATEMENT • Purpose: indicates financial progress of a business – net income or net loss • Used to report over a specific fiscal period • Parts: heading, revenue, expenses, net income or net loss • Source: Income Statement section of the work sheet

  7. INCOME STATEMENT • Matching Principle – (aka Matching Expenses with Revenue) – revenue earned and expenses incurred to earn are reported in the same fiscal period. • Component %: • The % relationship between one financial statement item and the total revenue • Sales is ALWAYS 100% • Net Income (Loss) or Total Expenses / Total Revenue

  8. INCOME STATEMENT

  9. THE BALANCE SHEET • Purpose: indicates financial condition of a business on a specific date • Reports: A = L + OE • Parts: heading, assets, liabilities, and OE • Source: Balance Sheet section of the work sheet • Total OE = Capital + Net Income – Drawing • Total OE = Capital – Net Loss – Drawing

  10. BALANCE SHEET

  11. Balance Sheet – reported in detail

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