Financial Statements (September 30, 2021)
Summary
TLDRThis script covers the fundamentals of financial statements, including balance sheets, income statements, and cash flow statements. It explains the categorization of assets, liabilities, and net worth, and how they relate to the accounting equation. The script also discusses the different types of businesses, focusing on merchandising, and touches on inventory management, cost of goods sold, and the calculation of net income. It briefly mentions service and manufacturing businesses, emphasizing the importance of understanding financial statements for business operations.
Takeaways
- 📊 Financial statements are essential documents that record the financial activities and position of a business or entity.
- 🔍 The basic financial statements include the balance sheet, income statement, and cash flow statement.
- 🏦 The balance sheet details assets, liabilities, and net worth or owner's equity, and follows the accounting equation: Assets = Liabilities + Equity.
- 💼 Assets are categorized into current, intermediate, and long-term assets, while liabilities are divided into current, intermediate, and long-term liabilities.
- 💵 The income statement, also known as the profit and loss statement, measures revenue and expenses over a specific accounting period.
- 💹 The cash flow statement tracks the inflow and outflow of cash, including sources like investments and operations, and uses like paying debts and operational costs.
- 🛍️ A merchandising business focuses on selling goods, tracking inventory, and managing the cost of goods sold.
- 📈 Inventory management is crucial as it directly impacts a business's net income and financial statements.
- 💼 Wholesalers buy products from manufacturers or other wholesalers and sell to retailers or other wholesalers, while retailers sell directly to consumers.
- 💹 Net income for a merchandiser is calculated by subtracting the cost of goods sold and other expenses from sales revenue.
- 💳 Cash sales involve immediate exchange of cash for goods, whereas credit sales involve a delay in cash collection through accounts receivable.
Q & A
What is the purpose of financial statements?
-Financial statements are formal records of financial activities and the financial position of a business, person, or other entity. They should be understandable, relevant, reliable, and comparable.
What are the basic financial statements?
-The basic financial statements are the balance sheet, income statement, and cash flow statement.
What does the balance sheet represent?
-The balance sheet represents the financial position of a business, showing assets, liabilities, and owner's equity.
How are assets categorized on a balance sheet?
-Assets are categorized into current assets, intermediate assets, and long-term assets.
What are liabilities and how are they categorized?
-Liabilities are financial obligations of a business, such as money owed to lenders, suppliers, employees, and others. They are categorized into current liabilities, intermediate liabilities, and long-term liabilities.
What is the accounting equation?
-The accounting equation is Assets = Liabilities + Capital, which shows that the total assets of a business are equal to the sum of its liabilities and owner's equity.
What is the income statement and what does it measure?
-The income statement, also known as the profit and loss statement, measures revenue and expenses during a specific accounting period, usually one year.
What is the cash flow statement and what does it include?
-The cash flow statement, also called the sources and uses of funds statement, includes total cash inflow and outflow, which consists of cash available and cash required, excluding borrowings and principal repayments.
What are the different types of businesses mentioned in the script?
-The script mentions service businesses, merchandising businesses, and manufacturing businesses.
How does a merchandising business track inventory?
-A merchandising business tracks inventory through either the periodic inventory method, where adjustments are made at the end of the accounting period, or the perpetual inventory method, where adjustments are continually updated.
What is the significance of inventory in a merchandising business?
-Inventory is significant in a merchandising business because it directly relates to profit and loss. The more items sold, the higher the income. However, inventory can also become obsolete or be subject to theft.
How is net income measured for a merchandiser?
-Net income for a merchandiser is measured by taking sales revenue, subtracting the cost of goods sold to get gross profit, and then subtracting operating expenses from the gross profit.
What is the difference between cash sales and credit sales?
-In cash sales, the business receives cash immediately and gives out inventory. In credit sales, the business gives out merchandise but the cash collection happens later through accounts receivable.
Outlines
📊 Introduction to Financial Statements
The paragraph introduces the concept of financial statements, which are formal records of financial activities and positions of a business or entity. It emphasizes the importance of these statements being understandable, relevant, reliable, and comparable. The basic financial statements mentioned are the balance sheet, income statement, and cash flow statement. The balance sheet is explained as consisting of assets, liabilities, and net worth or owner's equity. Assets are further divided into current, intermediate, and long-term assets, while liabilities are categorized into current, intermediate, and long-term liabilities. The net worth or equity is calculated as the difference between total assets and total liabilities. The income statement is described as a measure of revenue and expenses during a specific accounting period, typically one year. The cash flow statement is referred to as the sources and uses of funds, detailing the total cash inflow and outflow of a business. The paragraph also distinguishes between different types of businesses: service, merchandising, and manufacturing, with a brief explanation of each.
📈 Merchandising Business and Inventory Management
This paragraph delves into the specifics of merchandising businesses, which involve the sale of goods. It discusses the importance of tracking inventory, distinguishing between the periodic and perpetual inventory systems. The paragraph explains that in a periodic inventory system, adjustments are made at the end of the accounting period, while in a perpetual system, adjustments are continually updated. It also covers different types of purchases and discounts that can affect inventory valuation. The concept of net income in a merchandising business is explored, with a focus on how inventory values can impact a business's financial statements. The paragraph also touches on the role of wholesalers and retailers in the supply chain, and the importance of measuring net income through sales revenue, cost of goods sold, and operating expenses. The difference between cash sales and credit sales is highlighted, with an explanation of how these transactions affect a business's cash flow.
🏭 Manufacturing Business and Cost Analysis
The final paragraph shifts focus to manufacturing businesses, discussing the components that contribute to the cost of goods sold, such as direct materials, direct labor, and overhead costs. It explains how these costs are incorporated into the manufacturing process to determine the value of goods in inventory and how they are reflected in the profit and loss statement. The paragraph reiterates the principles learned in the context of a merchandising business but acknowledges that the manufacturing process introduces additional complexities. The instructor encourages students to ask questions and clarifies that the current lesson is focused on merchandising businesses. The paragraph concludes with an invitation for further discussion and clarification, and a reminder to take a break before moving on to the next topic.
Mindmap
Keywords
💡Financial Statements
💡Balance Sheet
💡Income Statement
💡Cash Flow Statement
💡Assets
💡Liabilities
💡Net Worth or Owner's Equity
💡Merchandising Business
💡Inventory
💡Cost of Goods Sold (COGS)
💡Service Business
💡Manufacturing Business
Highlights
Financial statements are formal records of financial activities and position of a business or entity.
Financial statements should be understandable, relevant, reliable, and comparable.
The basic financial statements include the balance sheet, income statement, and cash flow statement.
Balance sheet represents the financial position or net worth of an entity.
Assets are owned items with monetary value and are categorized into current, intermediate, and long-term assets.
Liabilities are financial obligations such as money owed to lenders, suppliers, employees, etc.
Net worth or equity is the difference between total assets and total liabilities.
Income statement measures revenue and expenses during a specific accounting period.
Cash flow statement tracks the flow of cash in and out of a business.
Total cash inflow includes all cash coming into the business, such as investments and revenue from operations.
Total cash outflow consists of cash required for operations, including payments to creditors and for goods or supplies.
Service business net income is the difference between revenues and expenses for services provided.
Merchandising businesses sell goods and must track the cost of sales and merchandise inventory.
Merchandising inventory is purchased for resale and is a key aspect of business operations.
There are two inventory tracking methods: periodic and perpetual.
Inventory can significantly impact a business's supported net income.
Cost of goods sold is a part of the cost of generating revenue, which includes the cost of items sold.
Wholesaler and retailer are intermediaries in the supply chain, buying from manufacturers or other wholesalers and selling to retailers or consumers.
Net income for a merchandiser is measured by sales revenue minus cost of goods sold and other operating expenses.
Cash sales and credit sales are two different methods of transaction, impacting cash flow and accounts receivable.
Service businesses are different as they are based on the performance of a service, which is considered revenue once performed.
Manufacturing businesses include costs such as direct materials, labor, and overhead in their financial calculations.
Transcripts
day class so this will be the next
subject
all right so
okay here
okay first we need to make it a
slideshow
on the very beginning okay so financial
statements
this is to be here
right
okay
so this is your classmate and then
financial statements
so aka financial report is a formal
record of financial activities and
position of a business
person or other entity financial
statements should be understandable
relevant reliable and comparable okay so
the basic financial statements are
balance sheet income statement cash flow
statement
balance sheet the statement of financial
precision or net worth or statement
while income statement or statement of
comprehensive income or statement or
revenue
and expense profit and loss report
well cash flow statement is a flow of
bad statement
so balance sheet balance sheet consists
of assets liabilities net worth or
owner's equity
balance sheet asset includes anything
that is owned by the entity that has
monetary value
asset
assets should be separated to three
categories
and that is
current assets intermediate assets and
long-term assets
liabilities are financial obligations of
the business such as money owned to
lenders suppliers employees
and others so a liability should be
separate into three categories and
that's current liabilities intermediate
liabilities
and long-term liabilities
so buyer sheet net worth or equity is
the difference between total assets and
total liabilities
total liabilities less liabilities
total assets less liabilities is equals
to equity or capital this is this is the
accounting equation from the very
beginning
that is the basic rule asset is equals
to liabilities plus
capital therefore if total assets minus
liabilities that will equal to your
capital
okay what's this oh my
all right income statement our profit
and loss statement it is a measure of
revenue on expenses
during a specific specified accounting
period usually
one year
[Music]
so the cash flow statement also called
the sources and uses of fans of low fan
statement
so the total cash flow includes
total cash available which include
excludes borrowings
new operating loans new medium and long
term or as well as consumption loans
total cash outflow consists of total
cash required which excludes principal
repayments principal prepayments
ending cash balance okay total cash
inflow will include all that comes into
the business so whether it is an
investment additional investment or
that is um
revenue from operations it's also uncut
info to the business whether it's
money in from borrowing is also an
inflow to the business your outflow
would be
you lend out your money to creditors
auto debtors and then you also
uh put out money for the operations like
you buy your goods or supplies
or you also pay your debts so that's
also at outflow or you pay your
investors is also not flow
service business net income is the
difference between its revenues and
expenses incurred in providing the
services types of business the service
business the merchandising business and
the manufacturing business
merchandising business
that are businesses that are
sells
merchandise or they are the
merchandising companies so we must track
the purchase the cost of sale
and
of these goods this is through tracking
the merchandise inventory account
merchandising business supplies are
purchased for use in running a business
merchandising inventory is purchased for
resale
note this this does not mean that
pencils and paper can be invented
if you are a stationary store then this
this items are inventory the key concept
is goods for resale
keeping track of inventory the periodic
inventory method adjustments are made at
the end of the accounting period to
track the inventories of periodic and
there's perpetual wherein adjustments
are continually made and updated to keep
track of the mentally
now periodic inventory system purchases
estimated when goods are bought from
supplier
classified as classified as part of the
accounts of cost of goods sold on sale
or merchant merchandising inventory
an asset account if and sold
so these are cash purchases credit
purchases under the there are two types
of purchases no cash purchases and the
product purchases you can purchase
through cash and you could purchase
through where i did okay so periodic
inventory system purchase returns and
allowances
there are the bitmap randoms and
purchase discounts as well
these are the accounts that you may
encounter so types of discount trade
discount cash discount cash discount
when you purchase
discount and sales discount
okay
inventory inventory adds an entirely new
dimension to running and evaluating in
business
inventory values can be played with to
alter a business supported net income
inventory is usually significant
because inventories relates with your
profit and your statements the more you
sold items
the higher your income
okay and mentally can be income obsolete
inventory can can cost a lot inventory
can be stolen right so cost of goods
sold since now we're selling goods part
of the cost of generating revenue is the
cost of items we are selling
okay
so wholesaler
versus retailer wholesaler an
intermediary that buys products from
manufacturer or the wholesaler and sells
them to retailers or other wholesalers
while the tailor buys products from the
manufacturer or wholesaler and sell them
to consumers directly manufacturing
wholesaler retailer
customer
okay measuring net income net income to
a merchandiser implies that the revenue
from selling merchandise
exceeds both the cost of the merchandise
sold to customers and the cost of other
expenses for the period
so measuring income means sales revenue
less cost of goods sold which is equal
to gross profit now gross profit less
operating expenses is equal to net
income
sales revenue class become earned in
selling merchandise while cost of goods
sold is the
cost of merchandise sold during the
period
while operating expenses expenses
occurred in running the business
[Music]
measuring net income
cash sale and credit sales so if it's a
cash sale you will
purchase
you will receive cash
on hand and you will give out your
inventory so that's a cycle
or the other way if you also buy your
goods in cash you keep money you get the
goods and of course you let go of your
cash it's the other way around also if
you are also the seller credit sale
because here the word is saved so we
call it a million so when you sell in
credit ulta
your cash collection happens only after
a while it has to go through within
accounts receivable
ah
an arrangement a contract between you
and the buyer and you you will pay later
through accounts receivable you have to
let go your merchandise got a god but
then your collection for cash will be
later
okay so any questions
i hope there's no more questions but um
thank you so much
hope you will just play this um
over and over again so when you further
understand the topic about
about
financial statements and the type of
businesses here it did not really
include about the service
because service is very easy service is
just
um performance of our delivery of
the contract
through performance of the service like
i said in the accounting services for
example
if you do bookkeeping for one month or
you do audit for a certain client
that is a service okay that is a sample
of service or lawyers fee professional
fee that's a service
right okay so once it's performed then
it's considered a revenue
right
um
for manufacturing business it's a
different
maybe different topic it is it will
include materials like direct materials
and from the raw materials okay and
there's also this labor directly bar
and then
and that
once these materials are in and then
there's overhead as well because say for
example manufacturing they will have
um
light and electricity to do the
manufacturing process and then water
that's that's the overhead there okay so
um
that will be included into a process of
completing all that what is related to
that specific
uh product and the product
the the cost of that related product
will be
used to measure how much should be the
value of your goods
as part of your inventory in your profit
and loss statement
okay so but the same principle comes but
we are only since your own first year in
tackling only actually this is your
minor subject that we learned from the
basic company which is a merchandising
business
all right so no more questions right so
further if you have questions you can
always write you can always message me
and you can always put your
concerns in the google classroom or in
the messenger
thank you so much
thank you also for the maker of the
slide
by class for now let's have another more
um
break let's have a break and then let's
have another topic thank you so much
again
浏览更多相关视频
[FABM2] Lesson 037 - Statement of Changes in Equity
Lesson 010 - Types of Major Accounts (Elements of Financial Statements)
Tek Derste Finans ve Yatırımı Öğren
Accounting for IGCSE - Video 29 - Inventory Valuation
The ACCOUNTING BASICS for BEGINNERS
Lesson 029 - Accounting for Merchandising Operations 3: Income Statement
5.0 / 5 (0 votes)