Chapter 01 – Financial Statements and Business Decisions
1-12
HANDOUT 1 – 1
TEAM PROJECT – OVERVIEW OF FINANCIAL STATMENTS
Complete the following table.
Financial Statement
Purpose
Equation
Income Statement
Statement of Stockholders’
Equity
Balance Sheet
Statement of Cash Flows
RELATIONSHIPS AMONG FINANCIAL STATEMENTS
Then, answer the following questions:
1. How does the income statement tie to the statement of stockholders’ equity?
2. How does the statement of stockholders’ equity tie to the balance sheet?
3. How does the balance sheet tie to the statement of cash flows?
Chapter 01 – Financial Statements and Business Decisions
1-13
HANDOUT 1 – 1 SOLUTION
TEAM PROJECT – OVERVIEW OF FINANCIAL STATEMENTS
Complete the following table.
Financial Statement
Purpose
Equation
Income Statement
Reports the financial
performance of the business
during the current accounting
period.
Revenues
– Expenses
= Net Income
Statement of Stockholders’
Equity
Explains changes in
stockholders’ equity accounts
(common stock and retained
earnings) for a stated period
of time.
Beginning balance
+ Increases
– Decreases
= Ending balances
Balance Sheet
Reports the financial position
of a business at a point in
time.
Assets = Liabilities +
Stockholders Equity
Statement of Cash Flows
Reports the inflows (receipts)
and outflows (payments) for a
stated period of time.
+/– Cash Flows from
Operating Activities
+/– Cash Flows from
Investing Activities
+/– Cash Flows from
Financing Activities
= Change in Cash
+ Beginning Cash
= Ending Cash
RELATIONSHIPS AMONG FINANCIAL STATEMENTS
Then, answer the following questions:
1. How does the income statement tie to the statement of stockholders’ equity?
Net income, from the income statement, is a component in determining ending retained earnings on
the statement of stockholders’ equity.
2. How does the statement of stockholders’ equity stockholders’ equity tie to the balance sheet?
The amount of ending retained earnings is then reported on the balance sheet.
3. How does the balance sheet tie to the statement of cash flows?
Cash on the balance sheet is equal to the ending cash reported on the statement of cash flows.
Chapter 01 – Financial Statements and Business Decisions
1-14
HANDOUT 1 – 2
BASIC BALANCE SHEET ELEMENTS
Match each account to its classification on the balance sheet:
Account
Asset
Liability
Stockholders’
Equity
a. Notes Payable
b. Cash
c. Common Stock
d. Inventories
e. Accounts Receivable
f. Accounts Payable
g. Property, Plant &
Equipment
h. Notes Payable
i. Retained Earnings
Chapter 01 – Financial Statements and Business Decisions
1-15
HANDOUT 1 – 2 SOLUTION
BASIC BALANCE SHEET ELEMENTS
Match each account to its classification on the balance sheet:
Account
Asset
Liability
Stockholders’
Equity
a. Notes Payable
X
b. Cash
X
c. Common Stock
X
d. Inventories
X
e. Accounts Receivable
X
f. Accounts Payable
X
g. Property, Plant &
Equipment
X
h. Notes Payable
X
i. Retained Earnings
X
Chapter 01 – Financial Statements and Business Decisions
1-16
HANDOUT 1 – 3
STATEMENT OF CASH FLOWS
Match each activity to its classification on the statement of cash flows:
Activity
Operating
Investing
a. Cash paid to suppliers
and employees
b. Cash paid to purchase
equipment and other
assets
c. Cash paid for dividends
d. Cash collected from
customers
e. Cash received from
selling equipment and
other long-term assets
f. Cash paid on notes
payable and other
financing
Chapter 01 – Financial Statements and Business Decisions
1-17
HANDOUT 1 – 3 SOLUTION
STATEMENT OF CASH FLOWS
Match each activity to its classification on the statement of cash flows:
Activity
Operating
Investing
a. Cash paid to suppliers
and employees
X
b. Cash paid to purchase
equipment and other
assets
X
c. Cash paid for dividends
d. Cash collected from
customers
X
e. Cash received from
selling equipment and
other long-term assets
X
f. Cash paid on notes
payable and other
financing
Chapter 01 – Financial Statements and Business Decisions
1-18
HANDOUT 1 – 4
COMPONENTS OF FINANCIAL STATEMENTS
Match each account, element, or transaction to the financial statement(s) on which it would be reported.
Account or Element
Income
Statement
Statement of
Stockholders’
Equity
Balance Sheet
Statement of
Cash Flows
a. The amount of cash
paid for equipment
b. Cash
c. Notes Payable
d. Common Stock
e. Inventories
f. Cost of Goods Sold
g. The amount of cash
collected from
customers
h. Accounts
Receivable
i. Notes Payable
j. Marketing Expense
k. Property, Plant &
Equipment
l. Dividends paid to
stockholders
m. Net Income
Chapter 01 – Financial Statements and Business Decisions
1-19
HANDOUT 1 – 4 SOLUTION
COMPONENTS OF FINANCIAL STATEMENTS
Match each account, element, or transaction to the financial statement(s) on which it would be reported.
Account or Element
Income
Statement
Statement of
Stockholders’
Equity
Balance Sheet
Statement of
Cash Flows
a. The amount of cash
paid for equipment
X
b. Cash
X
c. Notes Payable
X
d. Common Stock
X
X
e. Inventories
X
f. Cost of Goods Sold
X
g. The amount of cash
collected from
customers
X
h. Accounts
Receivable
X
i. Notes Payable
X
j. Marketing Expense
X
k. Property, Plant &
Equipment
X
l. Dividends paid to
stockholders
X
X
m. Net Income
X
X
X (1)
(1) Reported on the statement of cash flows when the indirect method is used.
Chapter 01 – Financial Statements and Business Decisions
1-20
HANDOUT 1 – 5
ACRONYMS
Professional Organizations
Acronyms
American Accounting Association
American Institute of Certified Public Accountants
Financial Accounting Foundation
Financial Accounting Standards Board
Governmental Accounting Standards Board
Internal Accounting Standards Board
Institute of Management Accountants
National Association of State Boards of Accountancy
Federal Government Agencies
Federal Communications Commission
Federal Deposit Insurance Corporation
Federal Trade Commission
General Accounting Office
Internal Revenue Service
Public Company Accounting Oversight Board
Small Business Administration
Securities & Exchange Commission
Standards
Accounting Principles Board (1959-1973)
Accounting Research Bulletins (1939-1959)
Accounting Series Release (SEC)
Generally Accepted Accounting Principles
Generally Accepted Auditing Standards
International Financial Reporting Standards
Statement on Auditing Standards (AICPA)
Statement of Financial Accounting Concepts (FASB)
Statement of Financial Accounting Standards (FASB)
Selected Professional Certifications
Certified Public Accountant
Certified Fraud Examiner
Certified Internal Auditor
Certified Management Accountant
Certified Public Accountant
Miscellaneous Terms in Accounting, Business, and Economics
Consumer Price Index
Continuing Professional Education
Earnings Per Share
Federal Insurance Contributions Act
Federal Unemployment Tax Act
Gross National Product
Chapter 01 – Financial Statements and Business Decisions
1-21
HANDOUT 1 – 6
ACRONYMS
Professional Organizations
Acronyms
AAA
AICPA
FAF
FASB
GASB
IASB
IMA
NASBA
Federal Government Agencies
FCC
FDIC
FTC
GAO
IRS
PCAOB
SBA
SEC
Standards
APB
ARBs
ASR
GAAP
GAAS
IFRS
SAS
SFAC
SFAS
Selected Professional Certifications
CPA
CFE
CIA
CMA
CPA
Miscellaneous Terms in Accounting, Business, and Economics
CPI
CPE
EPS
FICA
FUTA
GNP
Chapter 01 – Financial Statements and Business Decisions
1-22
HANDOUTS 1 – 5 and 1 – 6 SOLUTIONS
ACRONYMS
Professional Organizations
Acronyms
American Accounting Association
AAA
American Institute of Certified Public Accountants
AICPA
Financial Accounting Foundation
FAF
Financial Accounting Standards Board
FASB
Governmental Accounting Standards Board
GASB
Internal Accounting Standards Board
IASB
Institute of Management Accountants
IMA
National Association of State Boards of Accountancy
NASBA
Federal Government Agencies
Federal Communications Commission
FCC
Federal Deposit Insurance Corporation
FDIC
Federal Trade Commission
FTC
General Accounting Office
GAO
Internal Revenue Service
IRS
Public Company Accounting Oversight Board
PCAOB
Small Business Administration
SBA
Securities & Exchange Commission
SEC
Standards
Accounting Principles Board (1959-1973)
APB
Accounting Research Bulletins (1939-1959)
ARBs
Accounting Series Release (SEC)
ASR
Generally Accepted Accounting Principles
GAAP
Generally Accepted Auditing Standards
GAAS
International Financial Reporting Standards
IFRS
Statement on Auditing Standards (AICPA)
SAS
Statement of Financial Accounting Concepts (FASB)
SFAC
Statement of Financial Accounting Standards (FASB)
SFAS
Selected Professional Certifications
Certified Public Accountant
CPA
Certified Fraud Examiner
CFE
Certified Internal Auditor
CIA
Certified Management Accountant
CMA
Certified Public Accountant
CPA
Miscellaneous Terms in Accounting, Business, and Economics
Consumer Price Index
CPI
Continuing Professional Education
CPE
Earnings Per Share
EPS
Federal Insurance Contributions Act
FICA
Federal Unemployment Tax Act
FUTA
Gross National Product
GNP