Chapter One
Elements of Financial Statements
Market Allocation
+
+
Customers
Investors
$$$$$$$
Creditors
= Stakeholders
needing information
for decisions
Restaurant
Accounting
Process of compiling financial information into
a format that can be used by decision makers
Formation of Accounting
Federal Government
SEC
Securities & Exchange
Commission
Stakeholders
FASB
Financial Accounting
Standards Board
GAAP
Generally Accepted
Accounting Principles
Financial Statements
AICPA
American Institute
of Accountants
Financial Statements
• Agreed upon way to
communicate financial
information
•
Makes it easier to compare
companies and from one year
to the next
• Reporting entities:
– Sole proprietorship
– Partnership
– Corporation
Balance Sheet
Assets:
Cash
$15,000
Food & liquor inventory
10,500
Equipment
25,000
Total Assets
$ 50,500
Liabilities
Accounts payable
Loan (note payable)
Equals
$ 2,500
17,000
Total Liabilities
$ 19,500
Stockholders' equity
Common stock
Retained earnings
Total Stockholders' Equity
Plus
$10,000
21,000
$ 31,000
Statement of Changes in
Stockholders’ Equity
Common stock
Beginning retained earnings
Plus: net income
Less: dividends
$ 10,000
$
24,000
(3,000)
Ending retained earnings
21,000
Total stockholders' equity
$ 31,000
Income Statement
Revenue
$100,000
Expenses:
Food
10,000
Liquor
5,000
Wages
30,000
Rent
25,000
Utilities
Total expenses
Net Income
6,000
(76,000)
$ 24,000
Articulation
• How financial statements flow together
Assets:
Statement of Changes
Balance Sheet
Cash
Common stock
$15,000
$ 10,000
Food & liquor inventory
10,500
Beginning retained earnings
Equipment
25,000
Plus: net income
Total Assets
$ 50,500
Less: dividends
$
-
24,000
(3,000)
Ending retained earnings
Total stockholders' equity
Liabilities
Accounts payable
Loan (note payable)
$ 2,500
$ 19,500
Stockholders' equity
Retained earnings
Total Stockholders' Equity
$ 31,000
Income Statement
17,000
Total Liabilities
Common stock
21,000
Plus
$10,000
21,000
$ 31,000
Revenue
Expenses:
Food
Liquor
Wages
Rent
Utilities
Total expenses
Net Income
$100,000
10,000
5,000
30,000
25,000
6,000
(76,000)
$ 24,000
10 Elements of Financial
Statements
•
•
•
•
•
•
•
•
•
•
Assets
Liabilities
Equity (shareholders)
Contributed capital (stock)
Revenue (sales)
Expenses
Distributions (dividends)
Net Income (revenue less expenses)
Gains (non-operating income)
Losses (non-operating expenses)