Four Basic Financial Statements: Balance Sheet, Income Statement, Cash Flow, Retained Earnings: Lecture Notes – ACC 290, Week 1

Summary

Four basic financial statements are key to accounting. Students learn what each one shows and who uses them.

Purpose of Financial Statements

Financial statements help external users. Creditors use them to check a company's assets and cash. Investors use them to decide where to invest.

The Four Statements

The balance sheet shows what a company owns and owes. The income statement shows how a company makes and spends money. The cash flow statement shows cash movements. The retained earnings statement shows profits kept by the company.

Debits and Credits

Debits and credits record changes in accounts. They show which side of a T-account to use. They balance each other out.

Recording Transactions

Companies use accrual-basis or cash-basis accounting. Each has its own rules. Both must balance debits and credits.

Key terms

Balance Sheet

A summary of a company's assets, liabilities, and shareholders' equity.

Income Statement

A record of a company’s financial performance over a specific period.

Cash Flow Statement

A record of an entity's cash receipts and payments during a period.

Retained Earnings Statement

A record of net earnings not paid out as dividends but kept by the company.

T-account

A diagram shaped like a T that shows debits on the left and credits on the right.

Accrual-Basis Accounting

A system that records revenues and expenses when they are earned or incurred, not when cash changes hands.

Questions this document helps with

• What do creditors look for in financial statements?
• How do investors use financial statements?
• What is the difference between accrual-basis and cash-basis accounting?

Summary written with AI from the document's text.