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Dividends Distributions of a company’s earnings to its stockholders as a return on their investment. Common Stock (equity paid in by stockholders)

Retained Earnings (equity earned by the company)

Dividends are not an expense. 1-15

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Financial Statements Income Statement Statement of Retained Earnings

Financial statements are typically prepared in this order. Balance Sheet Statement of Cash Flows

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The Income Statement NOODLECAKE STUDIOS, INC. Income Statement (Projected) For the Month Ended September 30, 2018 Revenues Sales Revenue Service Revenue Total Revenues Expenses Salaries and Wages Expense Rent Expense Utilities Expense Insurance Expense Advertising Expense Income Tax Expense Total Expenses Net Income 1-17

$ 9,000 3,000 12,000

5,000 2,500 1,600 300 100 500 10,000 $ 2,000

The unit of measure assumption states that results of business activities should be reported in an appropriate monetary unit.

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The Statement of Retained Earnings NOODLECAKE STUDIOS, INC. Statement of Retained Earnings (Projected) For the Month Ended September 30, 2018 0 Retained Earnings, September 1, 2018 $ Add: Net Income 2,000 Subtract: Dividends (1,000) Retained Earnings, September 30, 2018 $ 1,000

Reports the way that net income and the distribution of dividends affected the financial position of the company during the period 1-18

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The Balance Sheet NOODLECAKE, INC. Balance Sheet (Projected) At September 30, 2018

Reports at a point in time: 1. What a business owns (assets) 2. What it owes to creditors (liabilities) 3. What is left over for the owners of the company’s stock (stockholders’ equity)

Assets Cash Accounts Receivable Supplies Equipment Software Total Assets

$ 13,000 2,500 500 14,000 6,000 $ 36,000

Liabilities and Stockholders’ Equity Accounts Payable Notes Payable Total Liabilities

$ 5,000 20,000 25,000

Stockholders’ Equity Common Stock Retained Earnings Total Stockholders’ Equity Total Liabilities and Stockholders’ Equity $

10,000 1,000 11,000 36,000

BASIC ACCOUNTING EQUATION Assets = Liabilities + Stockholders’ Equity 1-19

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The Statement of Cash Flows NOODLECAKE, INC. Statement of Cash Flows (Projected) For the Month Ended September 30, 2018 Cash Flows from Operating Activities Cash received from customers $ 9,500 Cash paid to employees and suppliers (5,500) Cash Provided by Operating Activities 4,000 Cash Flows from (used in) Investing Activities Cash used to buy equipment and software (20,000) Cash from (used in) Investing Activities (20,000) Cash Flows from Financing Activities Cash received for stock issuance 10,000 Cash dividends paid to stockholders (1,000) Cash borrowed from the bank 20,000 Cash Provided by Financing Activities 29,000 Change in Cash 13,000 Beginning Cash Balance, September 1, 2018 0 Ending Cash Balance, September 30, 2018 $ 13,000

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Summarizes how a business’s operating, investing, and financing activities caused its cash balance to change over a particular period of time.

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Relationships Among the Financial Statements NOODLECAKE, INC. Income Statement (projected) For the Month Ended September 30, 2018 Revenues Sales Revenue Service Revenue Total Revenues Expenses Salaries and Wages Expense Rent Expense Utilities Expense Insurance Expense Advertising Expense Income Tax Expense Total Expenses Net Income

$ 9,000 3,000 12,000

5,000 2,500 1,600 300 100 500 10,000 $ 2,000

NOODLECAKE, INC. Statement of Retained Earnings (projected) For the Month Ended September 30, 2018 0 Retained Earnings, September 1, 2018 $ 2,000 Add: Net Income (1,000) Subtract: Dividends Retained Earnings, September 30, 2018$ 1,000 1-21

Net income from the income statement is a component in determining ending Retained Earnings on the Statement of Retained Earnings. 1

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Relationships Among the Financial Statements, continued NOODLECAKE, INC. Balance Sheet (projected) At September 30, 2018

Ending Retained Earnings from the Statement of Retained Earnings is then reported on the Balance Sheet. 2

NOODLECAKE, INC. Statement of Retained Earnings (projected) For the Month Ended September 30, 2018

Assets Cash Accounts Receivable Supplies Equipment Software Total Assets

$ 13,000 2,500 500 14,000 6,000 $ 36,000

Liabilities and Stockholders’ Equity Accounts Payable Notes Payable Total Liabilities

$ 5,000 20,000 25,000

Stockholders’ Equity 10,000 Common Stock 1,000 Retained Earnings 11,000 Total Stockholders’ Equity Total Liabilities and Stockholders’ Equity$ 36,000

Retained Earnings, September 1, 2018 $ 0 2,000 Add: Net Income (1,000) Subtract: Dividends Retained Earnings, September 30, 2018$ 1,000 1-22

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Relationships Among the Financial Statements, concluded NOODLECAKE, INC. Balance Sheet (projected) At September 30, 2018

NOODLECAKE, INC. Statement of Cash Flows (projected) For the Month Ended September 30, 2018 Cash Flows from Operating Activities Cash Flows from (Used in) Investing Activities Cash Flows from Financing Activities Change in Cash Beginning Cash Balance, Sept. 1, 2018 Ending Cash Balance, Sept. 30, 2018

$ 4,000 (20,000) 29,000 13,000 0 $ 13,000

Assets Cash Accounts Receivable Supplies Equipment Software Total Assets

$ 13,000 2,500 500 14,000 6,000 $ 36,000

Liabilities and Stockholders’ Equity Accounts Payable Notes Payable Total Liabilities

$ 5,000 20,000 25,000

Stockholders’ Equity 10,000 Common Stock 1,000 Retained Earnings Total Stockholders’ Equity 11,000 Total Liabilities and Stockholders’ Equity $ 36,000

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Cash on the Balance Sheet is equal to the ending Cash reported on the Statement of Cash Flows.

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Financial Statements Summary

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Notes to the Financial Statements

Notes help financial statement users understand how the amounts were derived and what other information may affect their decisions.

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Financial Statements 

Balance Sheet 

Assets 

 

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Cash

Liabilities Equity

Statement of Cash Flows

Income Statement Statement of R/E

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Learning Objective 1-3

Explain how financial statements are used by decision makers.

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Using Financial Statements (B/S, I/S, SRE, or SCF?)

Creditors

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Investors

1. Is the company generating enough cash to pay what it owes?

1. What is the immediate return

2. Does the company have enough assets to cover its liabilities?

2. What is the longterm return (through

(through dividends) on my contributions?

stock price increases resulting from the company’s profits)?

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Learning Objective 1-4

Describe factors that contribute to useful financial information.

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External Financial Reporting Main goal: Provide useful financial information to external users for decision making.

Useful

Relevance Relevant

Faithful Faithful Representation

Timely Verifiable Comparable Understandable 1-30

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