Understanding Financial Statements - For Beginners!
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The document provides small business owners with an overview of financial statements, including the profit and loss statement and balance sheet, and their significance to various users such as owners, lenders, and investors. It explains key concepts like retained earnings, revenue recognition, and the matching principle in accrual accounting. The content emphasizes the importance of understanding these statements to assess financial performance and profitability.
Understanding Financial Statements - For Beginners!
- 1. For Small Business Owners Understanding Financial Statements Prepared by Five Star Accounting Unit B1 - 1150 Waverley Street, Winnipeg, MB R3T 0P4 | 204.927.7111 | fivestaraccounting.ca
- 2. Who are the users of Financial Statements? Owners - Yes, Really! Lenders - For Comparative YTY Statements Investors - To See Performance Tax Preparers
- 3. Shows Income / Revenue Shows Expenses Covers a Period (Month, Quarter, Year) If Revenue > Expenses = Net Income Profit & Loss Statment
- 4. Shows Values at a Point in Time Should Balance Assets = Liabilities + Equity Balance Sheet
- 5. Assets = Liabilities + Equity 7,000 = 5,500 + 1,500
- 6. What are Retained Earnings (R/E)? - The accumulation of previous years' net incomes or net losses. - Each year, the income or loss is added to the R/E beginning balance. - Negative R/E tells us the company has not been profitable.
- 7. The P&L and Balance Sheet "Hold Hands"!
- 8. What if Revenue increase by $200?
- 9. What if Expenses increase by $200?
- 10. New Office Furniture Cost $4000 Yearly Amortization is $400
- 11. REVENUE & EXPENSES Points to Remember About and Accrual Accounting!
- 12. - Revenues are recorded when EARNED and Not when money is received. This is called the Revenue Recognition Principle! - Expenses are to be matched to the period when INCURRED and NOT when paid. This is called the Matching Principle. It is also to be matched to the revenue it helped generate!