Financial Statements - An Introduction

00:02:51
https://www.youtube.com/watch?v=dqOCRIcapoI

Summary

TLDRThis text explains the four main financial statements defined by GAAP: the Balance Sheet, which shows assets, liabilities, and equity at a specific date; the Income Statement, which reflects income and expenses over a time period to determine net income or loss; the Statement of Cash Flows, detailing cash inflows and outflows by activity type; and the Statement of Owner's Equity, reconciling changes in equity accounts. Each statement plays a crucial role in providing a comprehensive view of a company's financial health.

Takeaways

  • 📊 **Balance Sheet**: Snapshot of financial position on a specific date.
  • 💰 **Income Statement**: Reflects income and expenses over time to calculate Net Income.
  • 🔄 **Cash Flow Statement**: Shows cash inflows/outflows by operating, investing, and financing activities.
  • 📈 **Owner's Equity Statement**: Reconciles beginning and ending equity accounts.

Timeline

  • 00:00:00 - 00:02:51

    The video outlines the four financial statements mandated by GAAP: Balance Sheet, Income Statement, Statement of Cash Flow, and Statement of Owner's Equity. The Balance Sheet provides a snapshot of a company's financial position at a specific date, categorizing accounts into Assets, Liabilities, and Equity, which follow the Accounting Equation: Assets = Liabilities + Owners' Equity. The Income Statement reflects the company's income and expenses over a period, calculated by subtracting Expenses from Revenues, indicating either Net Income or Net Loss. The Statement of Cash Flows shows the reconciliation of cash movements, dividing cash inflows and outflows into Operating, Investing, and Financing Activities. Finally, the Statement of Owner's Equity reconciles beginning and ending equity accounts, displaying changes due to Net Income, dividends, and stock issuances or buybacks. For further details, viewers are encouraged to visit the AccountingWITT Channel or website.

Mind Map

Video Q&A

  • What are the four financial statements required by GAAP?

    The four financial statements are the Balance Sheet, Income Statement, Statement of Cash Flows, and Statement of Owner's Equity.

  • What does the Balance Sheet show?

    The Balance Sheet provides a snapshot of the company’s financial position, showing Assets, Liabilities, and Equity.

  • How is Net Income calculated in the Income Statement?

    Net Income is calculated by subtracting Expenses from Revenues.

  • What does the Statement of Cash Flows detail?

    It details cash inflows and outflows categorized by Operating, Investing, and Financing Activities.

  • What does the Statement of Owner's Equity reconcile?

    It reconciles the company’s beginning and ending equity accounts.

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  • 00:00:06
    The four financial statements required by GAAP, (“Generally Accepted Accounting Principles”),
  • 00:00:08
    are the Balance Sheet, the Income Statement, the Statement of Cash Flow, and the Statement
  • 00:00:14
    of Owner’s Equity.
  • 00:00:15
    The Balance Sheet, sometimes referred to as the Statement of Financial Position, provides
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    the users of financial statements a snapshot of the company’s financial position as of
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    a specific date in time.
  • 00:00:28
  • 00:00:29
    The balance sheet shows the general categories of accounts: Assets, Liabilities, and Equity.
  • 00:00:36
  • 00:00:37
    These three categories constitute what is known as “The Accounting Equation”:
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    Which is Assets equals Liabilities plus Owners Equity
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    The Income Statement, or Statement of Operations, or Statement of Profit and Loss, provides
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    the users of financial statements a picture of the income and expenses of the company
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    over a period of time.
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    Typically, the Income statement shows information for a calendar year.
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    Sometimes, the income statement can be for a non-calendar year or a fiscal year basis,
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    which means any twelve month period.
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    The Income Statement is made up of two general types of accounts: Revenues and Expenses.
  • 00:01:17
  • 00:01:18
    Net Income is computed by taking the company’s Revenues and subtracting the company’s Expenses
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    for the period.
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    When Expenses are greater than Revenues, then there is said to be a Net Loss.
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    For GAAP purposes, the Income Statement is prepared using the Accrual method of accounting
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    under most circumstances.
  • 00:01:38
  • 00:01:39
    The Statement of Cash Flows provides the users of financial statements a reconciliation of
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    the company’s beginning and ending cash.
  • 00:01:46
  • 00:01:47
    Any cash that comes into the business is referred to as Cash Inflows.
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    Any cash that goes out of the business is referred to as Cash Outflows.
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    The cash inflows and outflows are shown separately for each of the three business activities,
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    namely, Operating Activities, Investing Activities, and Financing Activities.
  • 00:02:07
    The Statement of Owners Equity provides the users of financial statements a reconciliation
  • 00:02:12
    of the company’s beginning and ending equity accounts.
  • 00:02:16
  • 00:02:17
    This statement can have different formats, depending on the type of legal entity.
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    When a Statement of Owner’s Equity is presented for a corporation, the statement might show
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    increases for Net Income and Stock Issuance, and for decreases, the statement might show
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    Net loss, Dividends and Stock Buy-Backs.
  • 00:02:35
    These four statements make up the Financial Statements required by GAAP.
  • 00:02:39
    For more detailed explanations of these Financial Statements, and the different presentations
  • 00:02:43
    and calculations that are used, visit the AccountingWITT Channel or AcccountingWITT.com.
Tags
  • GAAP
  • Balance Sheet
  • Income Statement
  • Cash Flow Statement
  • Owner's Equity
  • Financial Statements
  • Accounting Principles
  • Net Income
  • Assets
  • Liabilities