The balance sheet and profit and loss statement

definition of balance sheet, income statements and examples Supplements to the Financial Statements in an Annual Report Management’s Discussion and Analysis covers three items: Liquidity Capital resources Results of operations

PREPARED BY

MR JUN ALEJO BATHAN, MEM

Jun Alejo Bathan, MEM

The Balance Sheet and the Profit and Loss Account

2Balance Sheet

 Reports assetsReports assets and claims to assets.

 Claims of creditors, liabilities.Claims of creditors, liabilities.

 Claims of owners, stockholders’ equity.Claims of owners, stockholders’ equity.

 Assets = Liabilities + Stockholders’

Equity

 Specific date – one point in time!

3Balance Sheet

From Retained Earnings Statement

4Income Statement

 Reports operating success or failure for

a period

 Summarizes revenues and expenses for

period: month, quarter, year.

 If revenue > expense = Net Income Net Income.

5Income Statement

8Stockholders’ Equity

Ownership claims on assets

 Paid-in capital

 Common stock

 Retained earnings

9 Basic Accounting Equation

Assets = Liabilities + Stockholders’ Equity

representation of the accounting

representation of the accounting

Using the accounting equation, answer the following question.

Using the accounting equation, answer the following question.

If Assets = $75,000

Then Stockholders’ Equity =

Then Stockholders’ Equity =

And Liabilities = $35,000

Review

$40,000

$75,000 = $35,000 + $40,000

Supplements to the Financial Statements

in an Annual Report

Management Discussion and Analysis

Notes to Financial Statements

Auditor’s report

Management’s Discussion and Analysis

covers three items:

1. Liquidity

2. Capital resources

3. Results of operations

16Management’s Discussion and Analysis

Notes to Financial Statements

Explanatory notes and supplementary

schedules

Clarifies information in financial statements

Expands with additional detail

Describes accounting policies

Explains uncertainties and contingencies

18Notes to Financial Statements

Auditor’s Report

Certified Public Accountant – CPA

Auditor (CPA) conducts independent examination of financial statements

Fair representation?

Follow generally accepted accounting Follow generally accepted accounting

principles (GAAP)?

Unqualified opinion

20Auditor’s Report

 Retained earnings statement

 Balance sheet

 Action step 1:

Report the revenues & expenses for

a period of time,

time, Income Income

Statement

Do It Problem: CSU Corporation

 Action step 1:

Report the revenues & expenses for

a period of time,

time, Income Income

Statement

Do It Problem: CSU Corporation

Do It Problem: CSU Corporation

CSU Corporation Income Statement For the Year Ended December 31, 2007

Create the heading

Name of the statement

Name of the

company

Period

of time

List the revenues

Use dollar signs to denote U.S currency

Do It Problem: CSU Corporation

Total expenses 10,200

List the expenses & underline sub-totals

Do It Problem: CSU Corporation

Total expenses 10,200

Calculate net income: revenues - expenses

Do It Problem: CSU Corporation

 Action step 2 : Show

amounts and causes of

changes in retained

earnings

 Use Net Income from Income

Statement

 Dividends