Financial Accounting
Thirteenth Edition
Chapter 1
The Financial Statements
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Learning Objective 1
Explain why accounting is critical to business
Accounting is critical to business for several reasons:
Generaled by chat GPT
1. Financial Reporting: Accounting provides the financial information that businesses need to make informed decisions,
prepare financial statements, and comply with regulatory requirements. This information includes financial transactions,
assets, liabilities, equity, revenue, expenses, and cash flows.
2. Decision Making: Accounting information helps businesses make important decisions related to budgeting, investment,
financing, and operations. It provides insights into the financial health of the business, helps identify areas of improvement,
and guides strategic planning.
3. Tax Compliance: Accounting is essential for businesses to comply with tax laws and regulations. Accurate accounting
records help businesses calculate their tax liability and file tax returns on time, avoiding penalties and fines.
4. Stakeholder Communication: Accounting information is used to communicate financial performance to stakeholders,
including investors, creditors, and regulators. It allows stakeholders to assess the financial health of the business and make
informed decisions about their involvement with the business.
5. Control and Monitoring: Accounting provides a system of control and monitoring for businesses. It helps businesses keep
track of their financial transactions, identify irregularities, and prevent fraud and other financial mismanagement.
Overall, accounting is critical to business because it provides the financial information necessary for businesses to make
informed decisions, comply with regulatory requirements, and communicate with stakeholders. It is essential for the
financial health and success of any business.
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Explain Why Accounting is Critical to
Business
• Accounting is an information system that:
– Measures评估业务活动
business activities
– Processes data into financial statements and reports
– Communicates results to decision makers
⼀
⼀
⼀
⼀
• The process by which a company’s financial statements
are prepared is called the accounting cycle
⼀
⼀
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Describe the Two Types of Accounting
and Who Uses Each Type
provide
information
to
exlernal
Ineernal
user
user
↑
Financial Accounting
Managerial Accounting
• For decision makers outside
the entity
• For managers inside the entity
⼀
– Budgets
– Investors
the
– Forecastssfeaure of
– Creditors
– Projections
– Government agencies
– The public
accounting
standards
—
{
US GAAP
Generally Aceepted
Acooueing
Priciple
IFRS
⼀
inlernational
finacial reporeing
slandards
.
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Definition of Financial Accounting
• Financial accounting provides relevant and accurate
financial information
to external users.
⼀
⼀
• This textbook focuses on financial accounting.
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Learning Objective 2
Explain and apply underlying accounting concepts,
assumptions, and principles.
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Professional Frameworks
Generally Accepted Accounting Principles (GAAP)
• Formulated by the Financial Accounting Standards Board
(FASB)
International Financial Reporting Standards (IFRS)
• Formulated by the International Accounting Standards
Board (IASB)
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Learning Objective 3
Apply the accounting equation to business organizations
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Apply the Accounting Equation to
Business Organizations
• Assets are⼀
economic resources that are expected to
produce a benefit in the future.
⼀
⼀
• Liabilities are 0
debts owed to people and organizations
赝
⼀ ⼀
outside of the business (creditors).
⼀
• Equity (also called capital, owners’ equity, or
stockholders’ equity for a corporation) represents the
股权—
owners’ claims.
⼀宗
⼀
—
⼀
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Exhibit 1-4 The Accounting Equation
• The accounting equation
shows the relationship
among a company’s
assets, liabilities, and
equity.
⼀
⼀
⼀
• The two sides must be
equal.
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Assets and Liabilities
• Assets 资产
– Cash and cash equivalents
—
– Inventories
– Property, plant, and equipment PPE
⼀
• Liabilities
—
负债
– Accounts payable
– Income taxes payable
–∞
Long-term debt
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Equity (1 of 2)
• The accounting equation can be rewritten as:
Assets
-
babiblies Equrty
=
• A corporation’s equity has two main parts:
– Paid-in capital
– Retained earnings
⼀
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Equity (2 of 2)
• Paid-in capital 股⻋在企业中的投资
– The amount stockholders have invested in the
business.
– Common stock is the basic component.
∝⼀
•—
Retained Earnings 企业为⽇后使⽤保留的收的
– The amount of earned income kept for use in the
business.
⼀
⼗
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Learning Objective 4
Construct financial statements and analyze the
relationships among them
⼀
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Construct Financial Statements and
Analyze the Relationships Among Them
Data flows from one financial statement to the next.
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Exhibit 1-6 Information Reported in the
Financial Statements
Question
Financial statement
1. How well did the
company perform during
the year?
2. Why did the company’s
retained earnings
change during the year?
3. What is the company’s
financial position at fiscal
year end?
Income statement
(also called the
Statement of operations)
Answer
Revenues
−
Start fraction Revenues minus Expenses over Net income, or Net loss end fraction
Net income ( or Net loss )
⼀
Beginning retained earnings
+ Net Income ( or − Net Loss )
⼀
Statement of retained
earnings
Balance sheet (also called
the Statement
of financial
⼀
position)
⼀
− Dividends declared
Start fraction Beginning retained earnings + Net income or minus Net loss minus Dividends declared over Ending retained earning end fraction.
Assets = Liabilities +
Stockholders’ Equity
⼀
⼀
⼀
4. How much cash did the
company generate and
spend during the year?
Statement of cash flows
Net Operating cash flows
± Net Investing cash flows
± Net Financing cash flows
Start fraction Net Operating cash flows plus or minus Net Investing cash flows plus or minus Net Financing cash flows over Increase, decrease in cash end fraction.
Increase ( decrease ) in cash
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1. 公司在这⼀年的表现如何？
要了解公司在这⼀年的表现如何，需要分析利润表。利润表显示了公司
的收⼊和⽀出，以及净收⼊或净亏损。正的净收⼊表示公司盈利，⽽净
亏损则表示财务损失。
2. 公司在这⼀年的保留收益为何变化？
公司在这⼀年的保留收益变化可以归因于⼏个因素。它受到利润表中的
净收⼊或净亏损的影响，以及任何宣布的股利。如果公司有正的净收⼊
并将收益保留⽽不作为股利分配，那么保留收益将增加。相反，如果公
司有净亏损或⽀付股利，保留收益将减少。
3. 公司在财年结束时的财务状况如何？
可以通过检查资产负债表来评估公司在财年结束时的财务状况。资产负
债表提供了公司资产、负债和股东权益的概览。它展示了公司的财务健
康状况，包括流动性、偿债能⼒和整体净值。
4. 公司在这⼀年产⽣和⽀出了多少现⾦？
现⾦流量表提供了公司在这⼀年产⽣和⽀出现⾦的信息。它将现⾦流量
分为经营活动、投资活动和融资活动三个类别。通过分析这份报表，可
以确定公司从核⼼运营中产⽣了多少现⾦，投资了多少资产或进⾏了收
购，以及通过融资活动获得或偿还了多少现⾦。
The Income Statement
• The income statement reports revenues and expenses
for the period.
• Also called the statement of operations
• The bottom line in the statement is the net income (loss)
for the period
Net income = Total Revenues & Gains
⼀
Total Expenses & Losses
Earnings
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The Income Statement
NOODLECAKE STUDIOS, INC.
Income Statement (Projected)
For the Month Ended September 30, 2021
Revenues
Sales Revenue
Service Revenue
Total Revenues
Expenses
Salaries and Wages Expense
Rent Expense
Utilities Expense
Insurance Expense
Advertising Expense
Income Tax Expense
Total Expenses
Net Income
$ 9,000
3,000
12,000
5,000
2,500
1,600
300
100
500
10,000
$ 2,000
Reports the
amount of
revenues
less
expenses
for a period
of time.
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The Statement of Retained Earnings (1 of 2)
• Portion of net income reinvested into the business
• Net income increases retained earnings
• Net losses and dividends decrease retained earnings
• Net income (net loss) flows from the income statement to
the statement of retained earnings
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The Statement of Retained Earnings (2 of 2)
Beginning retained earnings
Add: Net income (loss)
Less: Dividends declared
Ending retained earnings
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The Statement of Retained Earnings
NOODLECAKE STUDIOS, INC.
Statement of Retained Earnings (Projected)
For the Month Ended September 30, 2021
Retained Earnings, September 1, 2021 $
0
Add: Net Income
2,000
Subtract: Dividends
(1,000)
Retained Earnings, September 30, 2021 $ 1,000
Reports the way that net income and the
distribution of dividends affected the financial
position of the company during the period
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The Balance Sheet
• Also called the statement of financial position
• Reports three items:
– Assets
– Liabilities
– Stockholders’ equity
• Reflects the company’s position at a specific moment in
time
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Assets
• Current assets – expected to be used or converted to
cash within one business cycle
– Examples: cash and cash equivalents, receivables,
inventories, and prepaid expenses
⼀
• Long-term assets – expected to benefit the company
beyond just the next fiscal year
– Examples: property, plant, and equipment, long-term
investments, and intangible assets
⼀
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Liabilities
流动负债
• Current liabilities – debts due within one year
– Examples: accounts payable, salaries payable,
short-term notes payable
⼀
• Long-term liabilities – debts payable after one year
– Examples: long-term notes payable, long-term
bonds payable
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Equity (Stockholders’ Equity)
股⻋权益
• Represents the stockholders’
ownership of the business’s
⼀
assets
⼀
• Examples: common stock, additional paid-in capital,
retained earnings, treasury stock
⼀
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The Balance Sheet
→
Reports at a point in time:
⼀
1. What a business owns
(assets)
2. What it owes to
creditors (liabilities)
3. What is left over for the
owners of the
company’s stock
(stockholders’ equity)
NOODLECAKE, INC.
Balance Sheet (Projected)
At September 30, 2021
Assets
Cash
Accounts Receivable
Supplies
Equipment
Software
Total Assets
$ 13,000
2,500
500
14,000
6,000
$ 36,000
Liabilities and Stockholders’ Equity
Accounts Payable
Notes Payable
Total Liabilities
$ 5,000
20,000
25,000
Stockholders’ Equity
10,000
Common Stock
1,000
Retained Earnings
11,000
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity $ 36,000
BASIC ACCOUNTING EQUATION
Assets = Liabilities + Stockholders’ Equity
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The Statement of Cash Flows
⼀
• Reports cash receipts and cash payments
• Three types of activities:
– Operating activities: cash flows from selling goods
and
services to customers
∞
– Investing activities: cash flows from purchasing and
selling long-term assets
– Financing activities: cash flows from borrowing or
repaying funds or equity transactions
⼀
⼀
≈
⼀
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The Statement of Cash Flows
NOODLECAKE, INC.
Statement of Cash Flows (Projected)
For the Month Ended September 30, 2021
Cash Flows from Operating Activities
Cash received from customers
$ 9,500
Cash paid to employees and suppliers
(5,500)
Cash Provided by Operating Activities
4,000
Cash Flows from (used in) Investing Activities
Cash used to buy equipment and software
(20,000)
Cash from (used in) Investing Activities
(20,000)
Cash Flows from Financing Activities
Cash received for stock issuance
10,000
Cash dividends paid to stockholders
(1,000)
Cash borrowed from the bank
20,000
Cash Provided by Financing Activities
29,000
Change in Cash
13,000
Beginning Cash Balance, September 1, 2021
0
Ending Cash Balance, September 30, 2021
$ 13,000
Summarizes
how a
business’s
operating,
investing, and
financing
activities
caused its
cash balance
to change over
a particular
period of time.
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Exhibit 1-11 Relationships Among the
Financial Statements (in Millions of $) (1 of 3)
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Exhibit 1-11 Relationships Among the
Financial Statements (in Millions of $) (2 of 3)
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Exhibit 1-11 Relationships Among the
Financial Statements (in Millions of $) (3 of 3)
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