Beruflich Dokumente
Kultur Dokumente
Financial
Statements
and
Business
Decisions
Chapter 1
Founders of the business who also function as
managers are called OwnerMangers.
OwnerManagers
Creditors lend money for a specific period of
time and gain by charging interest on the money
they lend.
Creditors
Investors buy ownership in the company in the
form of stock.
Investors
1-4
Sell
Receive a
ownership
portion of the
interest in the
company’s
future for more
earnings in cash
than they
(dividends).
paid.
1-5
Learning Objectives
Managers
(internal
decision
Reports makers)
information
to decision
Collects and processes makers
financial information Investors
and
Creditors
(external
decision
makers)
1-8
Accounting System
Financial statements summarize the financial activities of the
business.
1-10
Financial statements prepared at the end of
the year are called annual reports.
1-11
Let’s look at
MAXIDRIVE
CORP.’s
financial
statements.
1-12
1. Name of entity MAXIDRIVE CORP.
2. Title of statement Balance Sheet
3. Specific date At December 31, 2006
4. Unit of measure (in thousands of dollars)
Assets
Cash $ 4,895
Accounts receivable 5,714
The Balance Inventories 8,517
Plant and equipment 7,154
Sheet reports Land 981
the financial Total assets $ 27,261
position of an Liabilities and Stockholders' Equity
Liabilities
entity at a
Accounts payable $ 7,156
particular point Notes payable 9,000
in time. Total liabilities $ 16,156
Stockholders' Equity
Contributed capital $ 2,000
Retained earnings 9,105
Total stockholders' equity 11,105
Total liabilities and stockholders' equity $ 27,261
1-13
Economic
Resources Sources of Financing for
Economic Resources
1-14
MAXIDRIVE CORP.
Balance Sheet
At December 31, 2006
(in thousands of dollars)
Assets are Assets
Cash $ 4,895
economic
Accounts receivable 5,714
resources Inventories 8,517
owned by the Plant and equipment 7,154
business as a Land 981
result of past Total assets $ 27,261
Liabilities andAmount of cash
Stockholders' in the company’s bank
Equity
transactions. Cash Liabilities
accounts.
Accounts payable
Accounts Amounts owed $ 7,156from prior
by customers
Notes payable
receivable sales. 9,000
Total liabilities
Parts and completed but unsold$ 16,156
Assets are listed Inventories
Stockholders' Equity
by their ease of products.
Contributed capital $ 2,000
Plant and
conversion into Retained earnings Factories and production 9,105
machinery.
cash. equipment
Total stockholders' equity 11,105
Total Land Land
liabilities and on which factories
stockholders' equity are built.
$ 27,261
1-15
MAXIDRIVE CORP.
Balance Sheet
At December 31, 2006
(in thousands of dollars)
Assets
Cash $ 4,895
Liabilities are Accounts receivable 5,714
debts or Inventories 8,517
obligations of Plant and equipment 7,154
the business Land 981
Total assets $ 27,261
that result from
Liabilities and Stockholders' Equity
past Liabilities
transactions. Accounts payable $ 7,156
Notes payable 9,000
Total liabilities $ 16,156
1. Name of entity
2. Title of statement
3. Specific period of time (Unlike the balance
sheet, this statement covers a specified
period of time.)
4. Unit of measure
1-19
Revenues
Revenues
Expenses
Expenses
Advertising expense
recorded in June.
X
June 2006
1-27
MAXIDRIVE CORP.
Statement of Retained Earnings
For the Year Ended December 31, 2006
(in thousands of dollars)
MAXIDRIVE CORP.
Statement of Retained Earnings
For the Year Ended December 31, 2006
(in thousands of dollars)
net income is
usually not equal
to the change
in cash for
the period.
1-31
MAXIDRIVE CORP.
Statement of Cash Flows
For the Year Ended December 31, 2006
(in thousands of dollars)
shown
Net decrease in cashin thetheinvesting
during year section$ . (156)
Cash at beginning of the year 5,051
Cash at end of the year $ 4,895
1-35
MAXIDRIVE CORP.
Statement of Cash Flows
For the Year Ended December 31, 2006
(in thousands of dollars)
section.
Cash paid to purchase equipment
$ (1,625)
Net cash flow from investing activities(1,625)
Cash flow from financing activities:
Cash received from bank loan $ 1,400
Cash paid for dividends (1,000)
Net cash flow from financing activities 400
Net decrease in cash during the year $ (156)
Cash at beginning of the year 5,051
Cash at end of the year $ 4,895
1-36
MAXIDRIVE CORP.
Statement of Cash Flows
For the Year Ended December 31, 2006
(in thousands of dollars)
reconciliation
Cash paid for dividends
of
Net cash flow from financing activities
Cash .
(1,000)
400
Net decrease in cash during the year $ (156)
Cash at beginning of the year 5,051
Cash at end of the year $ 4,895
1-37
MAXIDRIVE CORP.
Statement of Retained Earnings
For the Year Ended December 31, 2006
(in thousands of dollars)
Notes
Price/Earnings Ratio
Learning Objectives
International Perspective
Learning Objectives
Independent Auditors
Independent Auditors
An audit involves . . .
Examining the financial reports to
ensure compliance with GAAP.
Examining the underlying
transactions incorporated into the
financial statements.
Expressing an opinion as to the
fairness of presentation of financial
information.
1-54
Learning Objectives
End of Chapter 1