FINC 331-WEEK 1:Organizational Forms of Business
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Chapter2FinancialStatementsTaxesandCashFlows.pdf
Chapter 2 “Financial Statements, Taxes, and Cash Flow” from Finance by Boundless is used under the terms of the Creative Commons Attribution-ShareAlike 3.0 Unported license. © 2014, boundless.com. UMGC has modified this work and it is available under the original license.
C h a p te r 2
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Se ct io n 1
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K E Y P O IN TS
• F in an ci al st at em en ts ar e fo rm al ly p re p ar ed d oc u m en ts
co m m u n ic at in g an en ti ty ’s fi n an ci al ac ti vi ti es to p ar ti es
in cl u d in g in ve st or s, m an ag em en t an d ta x of fi ci al s.
• A n en ti ty ’s fi n an ci al st at em en t ty p ic al ly in cl u d es fo u r ba si c
co m p on en ts :a ba la n ce sh ee t, in co m e st at em en t, ca sh fl ow
st at em en t, an d st at em en t of ch an ge s in eq u it y.
• T h e ba la n ce sh ee t re p or ts a p oi n t- in -t im e sn ap sh ot of th e
as se ts ,l ia bi li ti es an d eq u it y of th e en ti ty .
• A n in co m e st at em en t re p or ts on a co m p an y' s ex p en se s an d
p ro fi ts to sh ow w h et h er th e co m p an y m ad e or lo st m on ey .
• T h e ca sh fl ow st at em en t re p or ts th e fl ow of ca sh in an d ou t of
th e bu si n es s, d iv id in g ca sh in to op er at in g, in ve st in g an d
fi n an ci n g ac ti vi ti es .
• A st at em en t of ch an ge s in eq u it y ex p la in s th e ch an ge s of th e
co m p an y' s eq u it y th ro u gh ou t th e re p or ti n g p er io d ,i n cl u d in g
p ro fi ts or lo ss es ,d iv id en d s p ai d an d is su e or re d em p ti on of
st oc k.
A fi n an ci al st at em en t is a fo rm al re p or t of th e fi n an ci al ac ti vi ti es of
a bu si n es s, p er so n ,o r ot h er en ti ty .F in an ci al st at em en ts ar e a ke y
co m p on en t of ac co u n ti n g; th e p ro ce ss of co m m u n ic at in g
in fo rm at io n ab ou t a fi n an ci al en ti ty (F ig u re 2. 1) .F in an ci al
st at em en ts ar e p re se n te d in a st ru ct u re d m an n er w it h co n ve n ti on s
ac ce p te d by ac co u n ti n g an d re gu la to ry p er so n n el .A n en ti ty ’s
fi n an ci al st at em en t ty p ic al ly in cl u d es fo u r ba si c co m p on en ts :a
ba la n ce sh ee t, in co m e st a te m e n t, ca sh fl ow st at em en t, an d
st at em en t of ch an ge s in eq u it y:
1. T h e co m p an y’ s ba la n ce sh ee t re p or ts on a co m p an y' s as se ts ,
li ab il it ie s an d ow n er sh ip eq u it y. A ba la n ce sh ee t is of te n
d es cr ib ed as a "s n ap sh ot of a co m p an y' s fi n an ci al co n d it io n "
at a si n gl e p oi n t in ti m e. B al an ce sh ee ts ar e u su al ly
91
Fi na
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Fi g ur e 2. 1 K ee p in g
M on ey
O rg an iz ed
