2. Major Financial Statements

b. describe the roles of the statement of financial position, statement of comprehensive income, statement of changes in equity, and statement of cash flows in evaluating a company’s performance and financial position;

What are the 4 principal financial statements? 1. Income statement (statement of earnings) 2. Balance sheet (statement of financial position) 3. Cash flow statement 4. Statement of changes in owners’ or stockholders’ equity

What is the income statement and what is its goal? The income statement summarizes revenues earned and expenses incurred, and thus measures the success of business operations for a given period of time.

What is the goal of income statement analysis? The goal of income statement analysis is to derive an effective measure of future earnings and cash flows.

What is the balance sheet and what is the formula for it? - A balance sheet provides a “snapshot” of a company’s financial condition. Think of the balance sheet as a photo of the business at a specific point in time. It reports major classes and amounts of assets, liabilities, stockholders’ equity, and their interrelationships as of a specific date. - Assets = Liabilities + Stockholders' Equity

What is the primary purpose of the cash flow statement? The primary purpose of the cash flow statement is to provide information about a company’s cash receipts and cash payments during a period. It reports the cash receipts and cash outflows classified according to operating, investment, and financing activities.

What is the statement of changes in owners equity? This statement reports the amounts and sources of changes in equity from capital transactions with owners. It reports ownership interests in order of preference upon liquidation and dividends.