Financial Statements: Understanding Income Statements, Balance

Financial Statements Income statement , balance sheet, & statement of cash flows. Provide stockholders & potential investors in a firm's annual report and other relevant outsiders such as creditors, gov. agencies, & Internal Revenue Service. Manufacturing firms, service providers, & nonprofit orgs each use a diff set of accounting principles or rules upon which the public agreed. International Financial Generally Accepted Accounting Principles GAAP) Numerous countries have adopted a standard set: Reporting standards Gross profit Goods or services sold Gross earnings perating profit Earnings before interest and taxes (EBIT) pcome before interest and taxes gar) Profit before toymakes iton rings after taxes (EAT) Income Statement What's the bottom line ? Overall profit or loss income statement - a financial report that shows an organizations profitability over a period of time - month , quarter , year . Overall revenues and costs incurred. ( Profit and loss , P&L , or Operating Statement ) revenue - the total amount of money received from the sale of goods & services, & from related business activities . Nonbusiness entities obtain revenues through donations from individuals & or grants from gov. & private foundations. Coqs - the amount of money a firm spent to buy or produce the products it sold during the period to which the income statement applies . COGS= beg. inventory + Interim purchases-ending inventory gross income / profit - revenues minus cogs required to generate the revenues. expenses - the costs incurred in the day-to-day operations of an org . 3 common expense accounts on the income statement . 1. Selling, General, & Admin: S & A advertising & sales salaries. G& A: salaries of execs & their staff & the costs of owning& maintaining the general office. 2. Research , Development, & Engineering Expense. Scientific, engineering, & marketing personnel Equipment & info used to design & build prototypes & samples. 3. Interest expenses : Direct costs of borrowing money depreciation - the process of spreading the costs of long-lived assets such as buildings & equipment over the total number of accounting periods in which they are expected to be used . net income - the total profit (or loss) after all expenses, including taxes, have been deducted from revenue; net earnings. Sensitive to corporate tax rate Companies record operational activities in the revenue & expense accounts during an accounting period . Gross profit , earnings bu interest & taxes , & net income are the result of calculations made from the revenues & expenses accounts ( not actual accounts )