Financial statements






1- Elements of Financial Statements : -


Assets – Liabilities = Equity
Equity = Contribution – Distribution = Comprehensive
by Owners to Owners Income


Comprehensive Income = Revenues – Expenses + Gains – Losses
+ Other Comprehensive Income


Balance of sheet:
2- Current Assets & Liabilities : -


Assets
- Economic Resource .
- Future Benefit .
- Control of Company Past Event
or Transaction . Liabilities
- Economic Obligation .
- Future Sacrifice .
- Beyond Control of Company Past Event or Transaction .
Current Assets
Converted into Cash or used up longer of :
- One Year .
- One Accounting Cycle . Current Liabilities
Paid or Setteled Longer of :
- One Year .
- One Accounting Cycle .
Requires Use of Current Assets .
Note : The measurement date of both current assets and liabilities is the balance-sheet date not the maturity date .
































It is the statement of financial position; it reports the assets, liabilities, and
Stockholders, equity of business enterprise at a specific date.


Liquidity: Describes "The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash or until liability has to be paid.


Solvency: Refers to the liability of an enterprise to pay its debts as they mature

The general format of balance sheet presentation
Liabilities and owners equity Assets
Current liabilities
Long-term debt
Owners equity
Capital stock
Additional paid-in capital Retained earnings Current assets
Long-term investments
Property,plant,and equipment /intangible assets
Other liabilities












. Statement of cash Flows: The primary purpose of statement cash flows is to provide relevant information about the cash receipts and cash payments of an enterprise during period.
. Content and format of the statement of cash flows:
1- Operating activities.
2- Investing activities.
3- Financing activities.








Basic Format of Cash Flow Statement
Statement of Cash Flows
Cash flows from operating activities $ XXX
Cash flows from investing activities XXX
Cash flows from financing activities XXX


Net increase (decrease) in cash XXX
Cash at beginning of year XXX


Cash at end of year XXX












Operating Activities
.When cash receipts (revenues) exceed cash expenditures (expenses)
















Investing Activities
. Sale of property, plant, equipment
.Sale of equity securities of other entitles
. Collections of loans to other entitles.

Financing Activities
. Issuance of equity securities.
Issuance of debt (bonds and notes).















Inflows of Cash Inflow cash
Cash Pool








Outflows of cash Outflows of cash




Operating Activities
.When cash expenditures (expenses) exceed
. Cash receipts


Investing Activities
. Purchase of property plant and equipment
. Purchase of debt and equity securities
. Loans to other entitles.




Financing Activities
.Payment of dividends
.Redemption of debt.
.Reacquisition of capital stock






.Preparation of the statement of cash flows:
1-Determine the cash provided by operations.
2-Determine the cash provided by or used in investing and financing activities.
3-Determine the change (increase or decrease) in cash during the period.
4-Reconcile the change in cash with the beginning and ending cash balances.






















. The following illustration demonstrates how these steps are applied in the preparation of a statement of cash flows:
Telemarketing Inc. in its first year of operations issued on January 1, 2002, 50,000 shares of $ 1.00 par value
Common stock for 50,000 cash.
The companies rented its office space, furniture, and telecommunications equipment and performed surveys throughout the first year. In June 2002 the company purchased Land for $ 15,000. The comparative balance sheets at the beginning and end of the year 2002 are shown in illustration.


Comparative Balance sheet
TELMARKETING INC.
Balance sheets
Assets Dec. 31,2002 Jan.1,2002 Increase/Decrease


Cash $31,000 $-0- $31,000 Increase
Account receivable 41,000 -0- 41,000 Increase
Land 15,000 -0- 15,000 Increase


Total $87,000 $-0-
Liabilities and Stockholders' Equity
Accounts payable $12,000 $-0- 12,000 Increase
Common stock 50,000 -0- 50,000 Increase
Retained earnings 25,000 -0- 25,000 Increase
Total $87,000 $-0-

. The income statement and additional information for
Telemarketing Inc. is as following:
Income Statement Data
TELEMARKETING INC.
Income Statement
For the year Ended Dec. 31,2002
Revenues $ 172,000
Operating expenses 120,000


Income before income taxes 52,000
Income tax expense 13,000


Net income $ 39,000
Additional information:
Dividends of $ 14,000 were paid during the year.


.Analysis of Telemarketing's comparative balances sheets reveals tow items that give rise to non cash credit or changes to the income statement:
1- The increase in accounts receivable reflects a noncash charge of credit of $ 41,000 to revenues.
2- The increase in accounts payable reflects a noncash charge of $ 12,000 to expense.
. As a result of the accounts receivable and accounts payable adjustments, cash provided by operations is determined to be $ 10,000, computed as follows
Net income $ 39,000
Adjustments to reconcile net income
To net cash provided by operating activities :
Increase in accounts receivable $ (41,000)
Increase in accounts payable 12,000 (29,000)


Net cash provided by operating activities $10,000



The increase of $ 50,000 in common stock resulting from the issuance of 50,000 shares for cash is classified as a financing activity.
Likewise, the payment of $14,000 cash in dividends is a financing activity.
Telemarketing Inc.'s only investing activity was the land purchase.
The statement of cash flows for Telemarketing Inc. for 2002 is as follows:
















TELEMARKETING INC.
Statement of Cash Flows
For the Year Ended Dec. 31,2001
Cash flows from operating activities
Net income $39,000
Adjustments to reconcile net income to
Net cash provided by operating activities:
Increase in accounts receivable $ (41,000)
Increase in accounts payable 12,000 (29,000)


Net cash provided by operating activities 10,000


Cash flows from investing activities:
Purchase of land (15,000)


Net cash used by investing activities (15,000)


Cash flows from financing activities:
Issuance of common stock 50,000
Payment of cash dividends (14,000)


Net cash provided by financing activities 36,000


Net increase in cash 31,000
Cash at beginning of year -0-


Cash at end of year $ 31,000