Linkage of financial statements

The four Financial Statements are linked with each other and linked

across time.

Order of financial statement preparation

1. Preparation of Income statement using the statement of comprehensive income accounts.

2. Preparation of statement of financial position using the updated retained earnings accounts.

3. Preparation of Statement of stockholder’s equity.

4. Preparation of statement of cash flow.

Statement of Financial position reports a company’s financial

position at a point in time.

It is the listing of the resources that an enterprise has to operate with as well as a listing of claims against those resources represented by both creditors and owners.

Ways of financing asset1. Owner Financing – can raise

money from shareholders.

2. Non owner Financing - can raise money from banks or other creditor and suppliers.

Assets – resources controlled by an entity as a result of past event and from which future economic benefits are expected to flow to the entity.

Liabilities – present obligation of an entity arising from past event.

Equity – owners claim on assets.

Investing = Financing

Working capital The difference between Current

Asset and Current Liability.

Net Operating Working Capital - difference between current assets and non – interest bearing current liabilities.

Investing Activities – it represented by the company’s asset.

Financing Activities - involve long-term liabilities, stockholders' equity (or owner's equity) , and changes to short-term borrowings.

Statement of comprehensive income

The change in equity during a period resulting from transactions and other events other than changes resulting from transactions with owners in their capacity as owners.

Net Income – reflects the profit to owners for that specific period.

Income Statement lay out Revenues

- Cost of Goods Sold_____________________

= Gross Profit- Expense

-----------------------------------Net Income ( Loss)

Operating Activities – it use company resources to produce, promote and sell its product and services.

Input markets generate most expenses while Output markets generate revenue to customers.

Statement of stockholders’ equity

It is a formal statement which shows the movements in the elements or components of the shareholders' equity.

Contributed capital represents the cash that the company received from sales of stocks to stockholders less any funds expended for the repurchase of stock.

Retained Earnings – cumulative total amount of income that the entity has earned that has been retained in the business and not distributed to shareholders in the form of dividends.

Beg. Retained Earnings + Net Income – Dividends = Ending retained earnings

Statement of cash flow reports the change in a company’s

cash balance over a period of time.

Component of financial statements summarizing the operating, investing and financing activities of an entity.