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Understanding Financial Statements. Users of Financial Information. Internal Users Managers plan, organize and run a business. Primary users. Users of Financial Information. External Users Investors Creditors Others Taxing authorities Regulatory agencies Customers

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users of financial information
Users of Financial Information
  • Internal Users
    • Managers plan, organize and run a business
users of financial information1

Primary users

Users of Financial Information
  • External Users
    • Investors
    • Creditors
    • Others
      • Taxing authorities
      • Regulatory agencies
      • Customers
      • Labour unions
      • Economic planners
objective of financial reporting
Objective of Financial Reporting
  • Provide the most useful financial information for decision making
  • This is accomplished

through the development

of financial statements.

how much is joe student worth
How much is Joe Student Worth?
  • HE HAS
    • - cash $19.22
    • - beer can empties $45.38
    • - CDs $345.12 (new)
    • - ’97 beater $1200.00 (market)
    • TOTAL $1609.72
how much is joe student worth1
How much is Joe Student Worth?
  • HE OWES
    • Back Rent $400 (current)
    • Std Loan* $1000 (long term)
    • TOTAL $1400
    • HE IS WORTH 1609.72 – 1400 = $209.72
accounting equation
Accounting Equation

Assets = Liabilities + Shareholders’ Equity

Assets = Liabilities + net worth

basic terms
Basic Terms
  • Assets - resources owned by a business
  • Liabilities - obligations of the business
  • Shareholders’ equity
    • Share capital - representing the primary ownership interest in a corporation
    • Retained earnings – accumulated earnings of corporation that have not been distributed to shareholders
csu corporation balance sheet december 31 2006
CSU CORPORATIONBalance Sheet December 31, 2006
  • Balance Sheet
  • Head up the statement
    • name of company
    • name of statement
    • date (as at a specific point in time)
csu corporation balance sheet december 31 20061
CSU CORPORATIONBalance Sheet December 31, 2006

Assets

Cash $ 2,000

Accounts receivable 4,000

Inventory 1,800

Equipment 16,000

Total assets $23,800

  • List the assets and total

Note the order of listing

csu corporation balance sheet december 31 20062
CSU CORPORATIONBalance Sheet December 31, 2006

Assets

Cash $ 2,000

Accounts receivable 4,000

Supplies 1,800

Equipment 16,000

Total assets $23,800

Liabilities and Shareholders’ Equity

Liabilities

Accounts payable $ 2,000

Notes payable 5,000

Total liabilities 7,000

  • List the liabilities and subtotal

Hmm .. Same order for liabilities

csu corporation balance sheet december 31 20063
CSU CORPORATIONBalance Sheet December 31, 2006
  • List shareholders’ equity.
  • Subtotal
  • Add to liabilities, total
csu corporation balance sheet december 31 20064
CSU CORPORATIONBalance Sheet December 31, 2006

Assets

Cash $ 2,000

Accounts receivable 4,000

Supplies 1,800

Equipment 16,000

Total assets $23,800

Liabilities and Shareholders’ Equity

Liabilities

Accounts payable $ 2,000

Notes payable 5,000

Total liabilities 7,000

Shareholders’ equity

Common shares $10,000

Retained earnings 6,800

Total shareholders’ equity 16,800

Total liabilities and shareholders’ equity $23,800

classified balance sheet
Assets

Current assets

Long-term investments

Capital assets

Liabilities

Current liabilities

Long-term liabilities

Shareholders’ Equity

Share capital

Retained earnings

Classified Balance Sheet

Generally contains the following standard classifications:

stop and check
Stop and Check
  • Total assets must equal total liabilities and shareholders’ equity
yeah but i have a job now i ll have money coming in
Yeah, but I have a job now. I’ll have money coming in.
  • Money coming in (for October)
  • - wages $1800
  • Money going out
    • Rent $400
    • Food $400
    • Entertainment $800
    • IMPROVED NET WORTH $200
revenues money coming in
Revenues (money coming in)
  • Revenues arise from sale of a product or service
  • Revenues result in an inflow of assets
expenses
Expenses
  • Expenses are the costs of assets consumed or services used to generate revenues
  • Examples
    • Cost of sales
    • Store operating expenses
    • General and administrative expenses
    • Interest expense
net earnings
Net Earnings
  • Net earnings are the excess of revenue over expenses

Revenue $10,000 Less: Expenses 3,000 Net earnings $ 7,000

(Net loss is the excess of expenses over revenues)

csu corporation statement of earnings for the year ended december 31 2006
CSU CORPORATIONStatement of EarningsFor the Year Ended December 31, 2006
  • Statement of Earnings
  • Head up the statement
    • name of company
    • name of statement
    • period of time covered
csu corporation statement of earnings for the year ended december 31 2001
CSU CORPORATIONStatement of EarningsFor the Year Ended December 31, 2001

Revenues Service revenue $22,200

  • List the revenues
csu corporation statement of earnings for the year ended december 31 20061
CSU CORPORATIONStatement of EarningsFor the Year Ended December 31, 2006

Revenues Service revenue $22,200 Expenses Rent expense $9,000

Insurance expense 1,000

Supplies expense 200

Total expenses 10,200

Earnings before income tax 12,000

Income tax expense 5,200

  • List and total the expenses. Note that income tax is shown separately from other expenses
csu corporation statement of earnings for the year ended december 31 20062
CSU CORPORATIONStatement of EarningsFor the Year Ended December 31, 2006

Revenues Service revenue $22,200 Expenses Rent expense $9,000

Insurance expense 1,000

Supplies expense 200

Total expenses 10,200

Earnings before income tax 12,000

Income tax expense 5,200

Net earnings $ 6,800

  • Subtract expenses from revenues to obtain net earnings (loss)
joe student s worth now
Joe Student’s Worth Now?
  • He was worth $209.72
  • He has since cleared $200.00
  • His current Net Worth $409.72

At end of October

csu corporation statement of retained earnings for the year ended december 31 2006
CSU CORPORATIONStatement of Retained EarningsFor the Year Ended December 31, 2006
  • Statement of Retained Earnings
  • Head up the statement
    • name of company
    • name of statement
    • period of time covered (same period as statement of earnings)
csu corporation statement of retained earnings for the year ended december 31 20061
CSU CORPORATIONStatement of Retained EarningsFor the Year Ended December 31, 2006

Retained earnings, January 1 $ 0

  • Start with beginning retained earnings (same as ending retained earnings of prior period)
csu corporation statement of retained earnings for the year ended december 31 2001
CSU CORPORATIONStatement of Retained EarningsFor the Year Ended December 31, 2001

Retained earnings, January 1 $ 0

Add: Net earnings 6,800

6,800

  • Add net earnings (subtract loss) from the current year (see Statement of Earnings)
  • Subtotal
csu corporation statement of retained earnings for the year ended december 31 20062
CSU CORPORATIONStatement of Retained EarningsFor the Year Ended December 31, 2006

Retained earnings, January 1 $ 0

Add: Net earnings 6,800

6,800

Less: Dividends 0

Retained earnings, December 31 $ 6,800

  • Subtract current year’s dividends (if any) and total
csu corporation statement of earnings for the year ended december 31 20063
CSU CORPORATIONStatement of EarningsFor the Year Ended December 31, 2006

Revenues Service revenue $22,200 Expenses Rent expense $9,000

Insurance expense 1,000

Supplies expense 20

Total expenses 10,200

Earnings before income tax 12,000

Income tax expense 5,200

Net earnings $ 6,800

Net earnings is needed for the

Statement of Retained Earnings

csu corporation statement of retained earnings for the year ended december 31 20063
CSU CORPORATIONStatement of Retained EarningsFor the Year Ended December 31, 2006

Retained earnings, January 1 $ 0

Add: Net earnings 6,800

6,800

Less: Dividends 0

Retained earnings, December 31 $ 6,800

Ending retained earnings is needed

for the Balance Sheet

csu corporation balance sheet december 31 20065
CSU CORPORATIONBalance Sheet December 31, 2006

Assets

Cash $ 2,000

Accounts receivable 4,000

Supplies 1,800

Equipment 16,000

Total assets $23,800

Liabilities and Shareholders’ Equity

Liabilities

Accounts payable $ 2,000

Notes payable 5,000

Total liabilities 7,000

Shareholders’ equity

Common shares $10,000

Retained earnings 6,800

Total shareholders’ equity 16,800

Total liabilities and shareholders’ equity $23,800

remember
Remember …
  • Remaining liquid and solvent is as important as making a profit because...
  • A company can survive without earnings, but it can’t survive very long without cash

“B u r n R a t e”

financial accounting statements
Financial Accounting Statements
  • Statement of Earnings
    • Reports the results of operations for a specific period of time
  • Statement of Retained Earnings
    • Reports the changes in retained earnings for a specific period of time
  • Balance Sheet
    • Reports the assets, liabilities, and shareholders’ equity as at a specific point in time
  • Statement of Cash Flows
    • Reports the cash receipts and payments for a specific period of time
elements of an
Elements of an
  • Management Discussion and Analysis
  • Auditor's Report
  • Financial Statements
    • Statement of Earnings
    • Statement of Retained Earnings
    • Balance Sheet
    • Statement of Cash Flows
  • Notes to Financial Statements