Contributed Capital and Retained Earnings make up Stockholders’ Equity. Assets = Liabilities + Stockholders’ Equity Income Statement (prepared first) Contains revenues and expenses. Earnings per Share (EPS) must be reported on the Income Statement. Measured by time period Statement of Stockholders’ Equity Net income appears on the statement of stockholders’ equity as an increase in Retained Earnings. Balance Sheet Assets = Liabilities + Stockholders’ Equity Net book value reflects the actual value of assets after Accumulated depreciation (afschrijvingen) Statement of Cash Flows is a list of all transactions of the period that affected the Cash account (asset). Three categories are: Operating activities, Investing activities, and Financing activities. Supplemental Disclosure: Interest paid, Income Taxes paid, and A listing of the nature and amounts of significant non-cash transactions. Net profit margin indicates how effective management is at generating profit on every dollar of sales Closing the books (end of the accounting cycle) Permanent (real) accounts are the balance sheet accounts that carry their ending balances into the next accounting period. Are not reduced to zero at the end of the accounting period. Balance Sheet account balances carry forward from period to period. Assets, Liabilities and Stockholders’ Equity at 31 December 2008. A new year (1 January) starts with Assets, Liabilities and Stockholders’ Equity of the prior year (31 December)
Often, cash flow statement and statement of stockholders’ equity are omitted. Some notes to the financial statements also may be omitted. SEC Reports Form 10-K Annual Report: Due within 90 days of the fiscal year-end. Is the annual report that publicly traded companies must file with the SEC, Contains audited financial statements. Form 10-Q Quarterly Report: Due within 45 days of the end of the quarter. Is the quarterly report that publicly traded companies must file with the SEC. Financial statements can be unaudited Form 8-K Current Report: Due within 15 days of the major event date. Is used by publicly traded companies to disclose any material event not previously reported that is important to investors Financial statements can be unaudited. Financial Statement Formats Asset section of the balance sheet: Current assets are assets that will be turned into cash or expire (be used up) within the longer of one year or the operating cycle. Property, plant and equipment include assets with useful lives of more than one year acquired for use in the business rather than for resale. The amount is reported net of accumulated depreciation. Intangible assets have no physical existence and a long life. They include patents, copyrights, trademarks, etc. Liability section of a classified balance sheet: Current liabilities are obligations that will be paid with current assets, normally within one year. Long-term liabilities are debts that have maturity dates extending beyond one year from the balance sheet date. Stockholders’ equity section of a classified balance sheet. Contributed capital is often shown in two separate accounts: Common stock is the money earned when the shares are new on the market. Par value is a legal amount per share established by the board of director; it established the minimum amount stockholder must contribute and had no relationship to the market price of the stock. Common stock is the Par value * amount of shares sold. Additional paid-in capital is the amount of contributed capital less the par value of the stock Retained earnings are the total earnings of the company less the total dividends declared since inception of operations.
Balance Sheet Ratios and Debt Contracts When a company borrows money, it often agrees to certain restrictions on activity. Ratios typically part of the borrowing agreement includes: Classified income statement Classified Income Statement may contain five sections: Continuing operations Discontinued operations Extraordinary items Cumulative effect of changes in accounting methods Earnings per share (EPS) Other Items Reported on the Income Statement In addition, companies may have non-recurring items. These non-recurring items may include: Discontinued operations, Extraordinary items, Cumulative effect of changes in accounting methods. These items are reported separately because they are not useful in predicting future income of the company. Extraordinary Items Unusual Infrequent Show net of applicable taxes. Cumulative Effect of Changes in Accounting Methods from one GAAP method to an alternative GAAP method The change must be to a preferable method and must be disclosed in notes to financial statements General Format for the Classified Income Statement: Gross sales minus any discounts, returns, and allowances during the period. Cost of inventory sold.