MGMT124 Review of The Basic Financial Statements
MGMT124 Review of The Basic Financial Statements
MGMT124 Review of The Basic Financial Statements
Lesson 1
Review of Basic Financial
Statements
Introduction to Financial
Management
MGMT124
Introduction
• Financial statements provide a snapshot
of a business firm’s financial health,
performance, and cash flow.
• Financial statements are important since
they provide information about a business
firm’s revenue, expenses, profitability, and
debt.
Importance and Uses of Financial Statements
a. The two are only formats and will yield the same amount of net
income/loss
b. The single-step SCI is more commonly used by service companies
while multi-step format is more commonly used by merchandising
companies
The Structure of a Single-Step Income Statement
(Merchandising Company)
The Structure of a Multi-Step Income Statement
(Merchandising Company)
The Structure of a Multi-Step Income Statement
(Merchandising Company)
The Structure of a Multi-Step Income Statement
(Merchandising Company)
The Structure of a Multi-Step Income Statement
(Merchandising Company)
The Structure of a Multi-Step Income Statement
(Merchandising Company)
The Balance Sheet
Is a statement that shows the financial status or
condition of a business for a given point in time.
Accounting Equation:
Bank loan
Mortgage note payable
Stockholders’ Equity
Represents claims of owners in the business. In
the balance sheet, stockholders’ equity is
represented s a residual claim because
creditors are given priority in the event of
liquidation of the business. The stockholders’
equity section is composed of the capital and
the retained earnings sections.
Stockholders’ Equity
The capital section shows: a) the amount, type
and number of shares issued and the value
paid by the shareholders; b) the number of
shares used and the value paid by the
shareholders; c) the breakdown of the value in
terms of par value and excess over par; and, d)
other capital accounts.
Stockholders’ Equity
The retained earnings section represents
accumulated earnings of the business.
computed using the formula:
Retained Earnings, beginning balance
add: Net Income
less: Dividends paid
equals:
Retained Earnings, ending balance
Structure of a Balance Sheet
Name of the Business
Name of Statement
Date
Assets Liabilities & Stockholders’ Equity
Current Assets Liabilities
Cash Pxxxxx Current liabilities
Marketable securities xxxx Account payable Pxxxx
Accounts receivable xxxx Accrued accounts payable xxx
Inventory xxxxx Total Current Liabilities Pxxxx
Prepaid expenses xxxx
Supplies xxxx Long-term liabilities
Total Current Assets Pxxxxx Bank loan Pxxxx
====== Mortgage payable xxx
Total Long Term Liabilities Pxxxx
Total Liabilities Pxxxx
Sundry Assets Stockholders’ equity
Land held for future use Pxxxx Capital stock
Long-term investment xxx Preferred stock Pxxx
Total Sundry Assets xxx Common stock xxx Pxxxx