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Financial Statement Review:
Financial Statements Tutorial
There are four major financial statements used to communicate information to external users (creditors,
investors, suppliers, etc.)
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1. Balance Sheet (assets, liabilities, and Shareholder’s equity)
2. Income Statement (revenues and expenses)
3. Statement of Changes in Shareholder’s Equity (contributed capital and retained earnings)
Statement of Retained Earnings
4. Statement of Cash Flows
Balance Sheet
Financial statement that presents the financial position of the company on a particular date.
Summarized by the accounting equation which must always be in balance
(Assets=Liabilities + Shareholder’s Equity)
Three categories of accounts:
1. Assets
Three Characteristics of Assets
a) It has probable future benefit that involves a capacity to contribute directly or indirectly to
future net cash flows
b) A particular entity can obtain the benefit and control other’s access to the asset
c) The transaction that resulted in the entity’s right to the benefit of the asset has already
occurred
Examples: Cash, Accounts Receivable, Land, Equipment, Construction in Progress, Patents,
Copyrights, Goodwill, etc.
2. Liabilities
Amounts that company owes to its creditors
Examples: Notes Payable, Accounts Payable, Unearned Revenue, etc.
3. Owner’s Equity (Stockholder’s Equity or Shareholder’s Equity)
The owner’s claims to the assets of the company
Includes both retained earnings and capital stock (common stock, preferred stock)
Most companies prepare a classified balance sheet which is the same as a regular balance sheet except assets
and liabilities are categorized as current and non-current.
1. Current—will be used or paid for within the next year
Examples: