馃攳
Financial Statements: Income, Retained Earnings, Balance Sheet, Cash Flow - Accounting video - YouTube
Channel: Dr. Brian Routh
[9]
This is part 4 in our series of the
Introduction to Financial Accounting
[14]
terms, principles, and the accounting
equation. And in this part we're going to
[19]
be looking at the financial statements
and what makes up those financial
[23]
statements and how those financial
statements are related. So let's first
[29]
look at the income statement. The income
statement is the first statement you
[34]
have to create, and there's a reason for
that, and we'll see that in just a second.
[39]
But we're looking at Smart Touch
Learning Incorporated. So the first thing
[42]
I want us to take a take note of is the
title. The title of the statement is
[48]
imperative so that your readers know
what statement they're looking at. So
[54]
let's look at the parts of the title. The
first thing in the title is the name of
[58]
the company. Underneath the name of the
company comes the name of the financial
[63]
statement, in this case, the income
statement. And then the third line of the
[67]
title is the time period covered. Now
you'll see with the income statement it
[73]
actually is a period of time. For example
in this one it's the month ended April
[79]
30th, 2010. It could be quarter ended. It
could be year ended, but note that the
[87]
income statement is for a period of time.
Now let's look at the parts of the
[94]
income statement. The income statement
contains two parts: the revenues and
[99]
expenses. You subtract your expenses from
your revenues to get net income or net
[105]
loss if expenses exceed the revenues.
Revenues cause increases in retained
[112]
earnings from delivering goods and
services to customers. Expenses cause
[117]
decreases in retained earnings resulting
from operations. So if we subtract our
[125]
expenses in this case from our revenues
we do get a net income because our
[129]
revenues exceed our expenses.
So we get net income of $5,200. Well now
[136]
let's look at the statement of retained
earnings. Again look at the title here.
[140]
Three lines in the title. Very
similar to the income statement title.
[146]
The statement of retained earnings also
covers a period of time, for example
[151]
month ended in this case. It could be
quarter ended, year ended. But it's a
[155]
period of time . Now look how these two
statements are related. We calculated net
[163]
income in the income statement above of
$5,200. Remember retained earnings is
[170]
affected by net income , and you can see
how in this statement of retained
[175]
earnings. So we take our net income from
the income statement and bring it down
[181]
to the statement of retained earnings. We
add that to our beginning retained
[186]
earnings, then subtract our dividends.
Remember dividends is not an expense,
[194]
that's why it does not appear on the
income statement, dividends is just a
[197]
payment to our owners for their
investment, it's not an expense. It
[202]
reduces the retained earnings, the owners
claims on the assets, part of owner's
[208]
equity. So once you subtract dividends,
you're left with your ending
[214]
retained earnings, in this case $3,200.
[222]
The third financial statement we will
produce is the balance sheet. Now
[231]
something you should see very familiar
about the balance sheet is that's the
[235]
accounting equation: assets equal
liabilities plus stockholders equity.
[244]
So the $3,200 that we got in our ending
retained earnings from the statement of
[250]
retained earnings, we will move down to
the stockholders equity section in our
[253]
balance sheet as our retained earnings
amount. Then we add up all of our assets.
[261]
All our assets should equal our
liabilities plus our stockholders equity.
[266]
And in this case it does. One thing I
want you to pay particular note to is
[272]
the title of the balance sheet. The
balance sheet is kind of an oddball when
[276]
it comes to the title of the
statement. Very similar but notice the
[282]
date. It is not for a period of time, it's
as of a specific day in time. So the
[291]
balance sheet is a snapshot of a
company's financial position. So what are
[297]
the assets as of today?
[299]
What are our
liabilities as of today? It doesn't cover
[302]
a period of time, it's as of this date in
time. The fourth and final financial
[311]
statement is called the statement of
cash flows. Notice its title is
[319]
exactly like the income statement in the
statement of retained earnings. Again the
[323]
balance sheet is the only oddball. It's
the only one that does not cover a
[327]
period of time. The statement of cash
flows contains three sections. The
[335]
operating activities section, the
investing activities section, and the
[339]
financing activities section. And those
three sections combined gives you your
[347]
net increase or decrease in cash. In this
case we have a net increase in cash of
[355]
$19,900. Notice our beginning cash
balance down at the bottom, as of April
[362]
the 1st, 2010, was 0. If you add your
beginning cash to the net increase in
[369]
cash, you get your ending cash balance as
of April the 30th , 2010,
[377]
of $19,900. If you note you have a check
figure for this statement, that $19,900
[388]
is exactly the cash amount that appears
on the balance sheet. That's your ending
[393]
cash balance.
Most Recent Videos:
You can go back to the homepage right here: Homepage