Balance Sheet You Learned About This Week

Balance Sheetyou Learned About Balance Sheets This Week Fill In The M

Balance Sheet You learned about Balance Sheets this week. Fill in the missing items below. Enter the answers in blue shaded cells ASSETS LIABILITIES Cash $10,000 Accounts payable $12,000 Accounts receivable 100,000 Notes payable 50,000 Inventory Total current liabilities Total current assets $220,000 Long-term debt Gross PP&E 500,000 Total Liabilities $190,000 Less accumulated depreciation Net PP&E $375,000 EQUITY Total Assets Common stock ($1 par; 100,000 shares) Paid-in capital Retained earnings 150,000 Total stockholders’ equity Total Liabilities and Equity Reminder: A=L+E Income Statement You learned about Income Statements this week. Fill in the missing items below. Enter the answers in blue shaded cells Sales COGS 575,000 Gross profit $1,600,000 G&A expense 200,000 Sales & Mkting expense Depreciation 50,000 Operating income Interest 100,000 Income before taxes Income taxes (30%) Net income $700,000 Steps: 1: Calculate Sales 2. Calculate Income before taxes. Taxes are 30%, so you know the Net Income (Y) is a percent of "Income before taxes" (X) 3. Calculate the Income taxes figure 4. Calculate Operating Income 5. Calculate Sales & Mkting Exp Managers within the firm, as well as the firm’s owners and lenders, keep track of the firm’s performance by reviewing its financial statements - income statement, balance sheet, and statement of cash flows. · What is the purpose of the income statement? Identify the major types of expenses that are shown on the typical income statement. · What is the purpose of the balance sheet? Identify the major types of assets and the claims of creditors and owners shown on the typical balance sheet. · What are the three different accounts that comprise the owners’ equity (also known as stockholders' equity) section on a typical corporate balance sheet? · What is a statement of cash flows? Describe the three standard sections contained in a statement of cash flows. PART 2: Complete both the balance sheet and income statement exercises in the attached Excel file and submit as a file. Note: the file is auto submitted to Turnitin and will result in high score. Please disregard the score.

Paper For Above instruction

Understanding Financial Statements: Balance Sheet, Income Statement, and Cash Flows

Financial statements are essential tools used by managers, investors, creditors, and other stakeholders to assess a company’s financial health and performance. Among these, the balance sheet, income statement, and statement of cash flows provide comprehensive insights into a company's financial position, profitability, and liquidity. This paper explores each of these statements, their purposes, major components, and how they interrelate to guide financial decision-making.

The Purpose of the Income Statement

The income statement, also known as the profit and loss statement, primarily aims to show a company's revenues, expenses, and profitability over a specific period. It provides stakeholders with a snapshot of operational performance, illustrating how well the firm generates income from its core activities. The statement helps management evaluate efficiency, identify cost control issues, and assess overall profitability.

Major Expenses on the Income Statement

Typical expenses include Cost of Goods Sold (COGS), which directly relates to production costs; selling, general, and administrative (G&A) expenses; marketing expenses; depreciation; and interest expenses. These components deduct from total revenues to calculate net income. Proper categorization and analysis of these expenses help management make strategic decisions to improve financial performance.

The Purpose of the Balance Sheet

The balance sheet provides a snapshot of a company's financial position at a particular point in time. It details what the company owns (assets), what it owes (liabilities), and the residual interest or equity of owners. This statement helps stakeholders understand the firm’s liquidity, capital structure, and financial stability, thereby aiding in assessing whether the company can meet its short-term and long-term obligations.

Major Types of Assets and Claims

Assets are generally classified as current and non-current. Current assets include cash, accounts receivable, inventory, and other assets expected to be converted into cash within a year. Non-current assets, such as property, plant, equipment (PP&E), and intangible assets, are long-term investments. Liabilities are also categorized as current and long-term, with current liabilities including accounts payable and short-term debt. Owner’s equity represents the owners’ claims after liabilities are deducted from assets.

Components of Owners’ Equity

The owners’ equity section typically includes three accounts: common stock (indicating ownership value and number of shares), paid-in capital (additional capital invested by owners beyond the par value), and retained earnings (accumulated net income not distributed as dividends). These components collectively reflect the residual interest owners have in the company’s assets after liabilities are settled.

The Statement of Cash Flows

The statement of cash flows reveals how cash moves into and out of the business over a period. It is divided into three sections:

1. Operating Activities: cash flows from core operations, including receipts from customers and payments to suppliers and employees.
2. Investing Activities: cash flows related to the acquisition and disposal of long-term assets such as equipment and investments.
3. Financing Activities: cash flows from transactions with the company’s owners and creditors, including issuing or repurchasing stock, borrowing, and repaying debt.

This statement is vital for understanding the company's liquidity, solvency, and ability to sustain operations.

Conclusion

In summary, financial statements are integral to understanding a company’s economic standing. The balance sheet offers a static view of assets, liabilities, and equity; the income statement illustrates operational profitability; and the statement of cash flows explains how cash is generated and used. Together, these statements enable managers, investors, and lenders to make informed decisions about the company's financial health and future prospects.

References

• Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice (15th ed.). Cengage Learning.
• Higgins, R. C. (2012). Analysis for Financial Management (10th ed.). McGraw-Hill Education.
• White, G. I., Sondhi, A. C., & Fried, D. (2003). The Analysis and Use of Financial Statements. Wiley.
• Gibson, C. H. (2013). Financial Reporting and Analysis. South-Western College Pub.
• Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2019). Fundamentals of Corporate Finance. McGraw-Hill Education.
• Wild, J. J., Subramanyam, K. R., & Halsey, R. F. (2014). Financial Statement Analysis. McGraw-Hill Education.
• Deegan, C. (2018). Financial Accounting Theory. McGraw-Hill Education.
• Revsine, L., Collins, W. W., Johnson, W. B., & Mittelstaedt, F. H. (2015). Financial Reporting & Analysis. Pearson.
• Penman, S. H. (2013). Financial Statement Analysis and Security Valuation. McGraw-Hill Education.
• Fraser, L. M., & Ormiston, A. (2016). Understanding Financial Statements. Pearson.

The integration of these financial statements provides a comprehensive platform for strategic planning, financial analysis, and investment decision-making, essential for stakeholders aiming to optimize company value and operational efficiency.