1.3 Financial Statements

Used to communicate the results of their business activities

• balance sheet

• Income statement

• Statement of cash flows

• Statement of shareholders’ equity

• Notes to the financial statements

Share information to collectively present financial information

= statement of financial position

Provides information, at a point of time, on the firm’s productive resources and the financing used to pay for those resources

1. Asset

2. Liability

3. Shareholders’ equity

Economic resources with potential too provide future economic benefits to a firm

• Cash, Inventories, Buildings = typical assets accounts

Creditors’ claims

• Accounts Payable, Debt - typical liabilities accounts

Funds owners (shareholders) provided

• Amount of funds owners have provided either by buying shares or by reinvesting (retaining) the net assets generated by earnings

• Common Stock, Retained Earnings = typical equity accounts

Assets = Liabilities + Shareholders’ Equity

The same as:

• Investing = Financing

• Resources = Sources of Resources

• Resources = Claims on Resources