1、YCF正版可修改PPT(本科）會計專業英語Chapter 7教學課件Chapter7 Introduction to Financial Statements2Mini Case The Hershey Company, located in Hershey, Pennsylvania, is the leading North American manufacturer of chocolate. Its products include Hersheys Kisses, Reeses Peanut Butter Cups, Kit Kat, and Take 5 bars. Imagine

2、 that you are considering the purchase of shares of Hersheys common stock. Answer these questions related to your decision whether to invest.1. What financial statements should you evaluate?2. What should these financial statements tell you?3. Do you care if the financial statements have been audite

3、d? Explain.Learning ObjectivesUnderstand the main elements of financial statementsDescribe the content and purpose of each of the financial statementsUnderstand how accounting information is used and why it is importantExplain the meaning of assets, liabilities and stockholders equityDescribe the co

4、mponents that supplement the financial statements in an annual report4Topic 1: An Overview of Financial Statement DefinitionFinancial statements for businesses usually include income statementsbalance sheetsstatements of retained earningscash flowsnotes and other disclosures5Topic 2: Balance Sheet D

5、efinitionA balance sheet provides insight into a firms solvency, emphasizing corporate assets, liabilities and net worth. Net worth, or equity capital, equals total assets minus total liabilities. Analyzing corporate statements of financial condition requires analytical dexterity and a knack for ide

6、ntifying economic factors that improve a companys success in the marketplace.6Content of balance sheetMost of the contents of a businesss balance sheet are classified under one of three categories: assets, liabilities, and equity. Some balance sheets, though, also include a notes section wherein rel

7、evant information that does not fit under any of the above accounting categories is included. Information that might be included in the notes section would include mentions of pending lawsuits that might impact future liabilities or changes in the businesss accounting practices.7Content of balance s

8、heet(1) AssetsCorporate assets are economic resources that a company relies on to operate. Accountants separate assets into five categories: current assets, long-term investments, fixed assets or property, plant and equipment, intangible resources and other assets. Current assets, such as inventorie

9、s and accounts receivable, are resources that a firm can convert into cash within 12 months. Long-term assets, also known as tangible or fixed resources, serve in corporate operations for one year or more. Examples include land, buildings, machinery and equipment. Long-term investments include finan

10、cial assets that a company purchases with a speculative motive. Examples include stocks, bonds and real estate. Intangible assets lack physical substance and include patents, trademarks and copyrights. The Other Assets category indicates any asset not listed elsewhere in the balance sheet (long-term

11、 accounts receivable, for example).8Content of balance sheet(2) LiabilitiesLiabilities are debts that a firm must repay. Debts also can be non-monetary obligations that a company must honor on time, especially if it provides a financial guarantee in a borrowing agreement on behalf of a third party.

12、For example, a company guaranteeing the loans of subsidiaries is liable if one or all subsidiaries default. A borrower must repay a short-term debt within one year. The maturity of long-term liabilities exceeds 12 months. Companies usually repay short-term debts, such as accounts payable, with curre

13、nt resources. Examples of long-term debts include loans, mortgage notes and bonds payable.9Content of balance sheet(3)Equity CapitalEquity capital consists of investments that corporate owners make in a company. Buyers of equity are otherwise known as shareholders, equity holders or stockholders. Sh

14、areholders receive dividend payments at the end of a specific period, such as a quarter or fiscal year. They also make profits when share prices rise on securities exchanges, such as the New York Stock Exchange or Johannesburg Stock Exchange. A companys stockholders equity balance also includes reta

15、ined earnings, which represent profits that the company has not distributed to shareholders.10Content of balance sheetExample 7-1 Balance Sheet:A balance sheet is an extended form of the accounting equation. An accounting equation is:Assets = Liabilities + EquityAssets are the resources controlled b

16、y a business, equity is the obligation of the company to its owners and liabilities are the obligations of parties other than owners.A balance sheet is named so because it lists all resources owned by the company and shows that it is equal to the sum of all liabilities and the equity balance.A balan

17、ce sheet has two formats: account form and report form.An account form balance sheet is just like a T-account listing assets on the debit side and equity and liabilities on the right hand side. A report-form balance sheet lists assets followed by liabilities and equity in vertical format.11Content o

18、f balance sheetThe following example shows a simple balance sheet based on the post-closing trial balance of Company A.Company ABalance SheetAs on December January 31, 2017ASSETSLIABILITIES AND EQUITYCurrent Assets:Liabilities:Cash$20,430Accounts Payable$5,200Accounts Receivable5,900 Utilities Payab

19、le3,964Office Supplies4,320 Unearned Revenue1,000Prepaid Rent24,000 Interest Payable150Total Current Assets$54,650 Notes Payable20,000Non-Current Assets: Total Liabilities$30,314Equipment$80,000 Common Stock100,000Accumulated Depreciation1,100Retained Earnings3,236Net Non-Current Assets$78,900 Total

20、 Assets$133,550Total Liabilities and Equity$133,55012Topic 3: Income Statement DefinitionAn income statement is a financial statement that reports a companys financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its

21、revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period.13Utility of Income Statement Analysts use the income statement for data to calculate financial ratios such as return on equity (ROE), return on

22、assets (ROA), gross profit, operating profit, earnings before interest and taxes (EBIT), and earnings before interest taxes and amortization (EBITDA). The income statement is often presented in a common-sized format, which provides each line item on the income statement as a percent of sales. In thi

23、s way, analysts can easily see which expenses make up the largest portion of sales. Analysts also use the income statement to compare year-over-year (YOY) and quarter-over-quarter (QOQ) performance. The income statement typically provides two to three years of historical data for comparison. 14Utili

24、ty of Income Statement Example 7-2 Income Statement:The basic equation on which an income statement is based is:Revenues Expenses = Net IncomeAll companies need to generate revenue to stay in business. Revenues are used to pay expenses, interest payments on debt and taxes owed to the government. Aft

25、er the costs of doing business are paid, the amount left over is called net income. Net income is theoretically available to shareholders, though instead of paying out dividends, the firms management often chooses to retain earnings for future investment in the business.Income statements are all org

26、anized the same way, regardless of industry. The basic outline is shown in the following example:15Utility of Income StatementIncome statements are all organized the same way, regardless of industry. The basic outline is shown in the following example:Income Statement for Company XYZFor the year end

27、ed December 31, 2017Total Revenue $100,000 Cost of Goods Sold ($ 20,000)Gross Profit $ 80,000Operating Expenses Salaries $10,000 Rent $10,000 Utilities $ 5,000 Depreciation $ 5,000Total Operating Expenses ($ 30,000)Operating Profit (EBIT) $ 50,000Interest Expense ($ 10,000)Earnings before tax (EBT)

28、$ 40,000Taxes ($ 10,000)Net Income $ 30,000Number of Shares Outstanding 30,000Earnings per Share (EPS) $1.0016Topic 4: Statement of Retained Earnings DefinitionA statement of retained earnings is a financial statement outlining the changes in retained earnings for a specified period. The statement i

29、s prepared in accordance with generally accepted accounting principles (GAAP). It reconciles the beginning and ending retained earnings for the period, using information such as net income from the other financial statements. This statement of retained earnings can appear as a separate statement or

30、as an inclusion on either a balance sheet or an income statement. Also, the statement of retained earnings can be known as a statement of owners equity, an equity statement or a statement of shareholders equity.17Retained EarningsRetained earnings refer to any profits made by an organization that it

31、 decides to keep for internal use. These funds may also be referred to as retained profit, accumulated earnings or accumulated retained earnings. Often, these retained funds are used to make payment on any debt obligations, or are reinvested into the company to promote growth and development. 18Reta

32、ined EarningsExample 7-3 Statement of Retained Earnings:The basic Statement of retained earnings equation is as follows:Net income = Preferred stock dividends paid + Common stock dividends paid + Retained earningsOr, equivalentlyRetained earnings = Net income Preferred stock dividends paid Common st

33、ock dividends paid Retained earnings, in other words, are the funds remaining from net income after the firm pays dividends to shareholders. Each periods retained earnings add to the cumulative total from previous periods, creating a new retained earnings balance.The following example shows the form

34、at of a statement of retained earnings:Company AStatement of Retained EarningsFor the year ended Dec 31, 2017Beginning Retained Earnings$32,100Correction of Error in Telephone Expense$1,000 Tax Effect 30%300 Net Correction700Adjusted Beginning Balance$31,400+ Net Income44,950 Dividends Declared7,200

35、Ending Retained Earnings$69,15019Topic 5: Statement of Cash Flows DefinitionA cash flow statement is one of the quarterly financial reports publicly traded companies are required to disclose to the public. The document provides aggregate data regarding all cash inflows a company receives from its on

36、going operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given quarter.20Cash Flows from OperationsThe first set of cash flow transactions is from operational business activities. Cash flows from operations start with ne

37、t income and then reconcile all noncash items to cash items within business operations. For example, accounts receivable is a noncash account. If accounts receivables go up, it means sales are up, but no cash was received at the time of sale. The cash flow statement deducts receivables from net inco

38、me because it is not cash. Also included in cash flows from operations are accounts payable, depreciation, amortization and numerous prepaid items booked as revenue or expenses but with no associated cash flow.21Cash Flows from InvestingCash flows from investing activities include cash spent on prop

39、erty, plant and equipment. This is where analysts look to find changes in capital expenditures (CAPEX). While positive cash flows from investing activities are a good thing, investors prefer companies that generate cash flows primarily from business operations, not investing and financing activities

40、. 22Cash Flows from FinancingCash flows from financing is the last business activity detailed on the cash flow statement. The section provides an overview of cash used in business financing. Analysts use the cash flows from financing section to find the amount paid out in dividends or share buybacks

41、. Cash obtained or paid back from capital fundraising efforts, such as equity or debt, is also listed.23Example 7-4 Statement of Cash FlowsFollowing is a cash flow statement prepared using indirect method:Company A, Inc.Cash Flow StatementFor the Year Ended Dec 31, 2017Cash Flows from Operating Acti

42、vities:Operating Income (EBIT)$489,000Depreciation Expense112,400Loss on Sale of Equipment7,300Gain on Sale of Land51,000Increase in Accounts Receivable84,664Decrease in Prepaid Expenses8,000Decrease in Accounts Payable97,370Decrease in Accrued Expenses113,860Net Cash Flow from Operating Activities$

43、269,806Cash Flows from Investing Activities:Sale of Equipment$89,000Sale of Land247,000Purchase of Equipment100,000Net Cash Flow from Investing Activities136,000Cash Flows from Financing Activities:Payment of Dividends$90,000Payment of Bond Payable200,000Net Cash Flow from Financing Activities290,00

44、0Net Change in Cash$115,806Beginning Cash Balance319,730Ending Cash Balance$435,53624Topic 6: Notes and Other DisclosuresNotes to Financial StatementsNotes to the financial statement present all such information which cannot be presented on the face of income statement, balance sheet, statement of c

45、ash flows and statement of changes in equity.Typical notes to the financial statement are:An introduction of the business outlining its legal status, its country of incorporation and the name of its parents if any and a statement about the companys areas of business and its operations.A summary of a

46、ccounting policies related to revenue recognition, inventories, property, plant and equipment, financial instruments, etc.A schedule of property plant and equipment showing the addition and deletion of assets, related movement in the accumulated depreciation account and book value.A breakup of cost

47、of sales, selling expenses and administrative expenses.A detailed disclosure of different classes of financial instruments and their related risks.A breakup of the gross amounts and present values of lease obligations of the business.A detail of transactions with related parties.A detail of contingencies that may affect the business in future, for example legal proceedings against the business.A description of major events that occurred after the balance sheet date, etc.25Topic 6: Notes and Other DisclosuresManageme