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Introduction to
Financial Statements
and Other Financial
Reporting Topics
Forms of Business Entities
Business:
Any legal activity to earn profit.
• Sole Proprietorship:
A business owned and controlled by one person, is not a legal
entity separate from its owner.
• Partnership:
A business owned by two or more individuals. Each owner, called
a partner, is personally responsible for debts of the partnership.
Partners and business are separate entities.
• Joint Stock Company/Business Corporation:
Business which is formed under company’s ordinance 1984 and
has legal right to act as a person. A legal entity incorporated in a
particular state. Ownership is evidenced by shares of stock.
The Financial Statements
1. Balance Sheet (Statement of Financial position)
Measures the financial position at any point in
time.
Three major sections:
I. Assets: Resources of the firm
II. Liabilities: The debts of the firm.
III. Owners’ Equity: Owners’ claims against the
assets of the business.
Continued………..
2. Income Statement (Statement of Earnings):
Summarizes revenues and expenses and gains
and losses (operating costs), ending with net
income (at the end of an accounting period)
3. Statement of Owners’ Equity (Reconciliation of
owners’ equity account):
Reconciliation of beginning and ending balances
of their owners’ equity account.
R/E links the balance sheet to income statement.
Continued…………..
4. Statement of Cash Flows:
Details the inflows and outflows of cash during a specified
period of time.
Three main Sections:
I. Cash flows from operation activities
II. Cash flows from investing activities
III.Cash flows from financing activities
5. Footnotes:
Footnotes to financial statements are used to present
additional information about items included in financial
statements and to present additional financial information.
The Accounting Cycle
Accounting Period: it is a time period in which the
business measures its operating results.
Accounting Cycle: The sequence of accounting
procedures completed during each accounting
period is the accounting cycle.
Steps: