Financial Statements

Privately held companies = statements are private

Publicly traded companies = statements publicly accessible through the SEC (Securities and Exchange Commission)

Three primary financial statements:

• Balance Sheet

  • List of resources and claims on said resources at a specific point

  • Assets - what we own or control

    • Common assets: cash, accounts receivable, inventory, buildings

  • Liabilities - what we owe

    • Common liabilities: accounts payable, wages payable, taxes payable, long-term debt, unearned revenue

  • Owners’ Equity - the owner’s share of the company

    • Common sources:

      • Capital stock: the amount paid by shareholders to obtain shares of stock

      • Retained earnings: how much profit is put back into the business (if total net income is put back into the business [very rare], retained earnings and net income would be equal)

  • Follows the accounting equation (A = L + [O]E)

• Income Statement

  • Measure of economic performance over a time period (typically quarterly, annually)

  • Revenues - increase in net assets as a result of operations (typically sales)

  • Expenses - decrease in net assets as a result of operations

  • Net income - revenues less expenses

• Statement of Cash Flows

  • Measures how cash changed over a time period

  • Inflows and outflows from three main categories

    • Operations - what we do every day

    • Investing - property and equipment

    • Financing - money borrowed

      • Typically flows upward (company borrows money to invest in equipment and property to earn money via operations)

The Securities and Exchange Commission (SEC)

• Created in 1933 to ensure full and fair disclosure within securities markets

• Form 10-K

  • Annual filing with the SEC

  • What does the business do? What services/products are provided?

  • Risks exposed - swings in interest rates, reliance on few suppliers, etc

  • Significant properties owned

  • Significant legal proceedings

  • Management discussion and analysis of financial conditions

  • Financial statements

• Form 10-Q

  • Quarterly filing with the SEC

Classified balance sheets separate assets by:

• short-term assets: expected to be used within a year, or an operating period—whichever is longer (cash)

• long-term assets: expected to remain in possession after a year (property)

Liquid assets: in the form of cash, or can easily be converted to cash

Illiquid assets: difficult to convert into cash, like undeveloped land

The graduate identifies the role of accounting information and the purpose of the accounting cycle in decision-making.

The graduate explains how financial statements assist decision-making.

The graduate determines the elements and processes involved in managing a company’s cash flows and operating cycle.

The graduate explains how controlling costs and profits affects an organization.

The graduate explains how managerial cost information assists internal decision-making.

The graduate explains how various costing methodologies assist internal decision-making.