{"id":9883,"date":"2023-10-24T18:46:39","date_gmt":"2023-10-24T18:46:39","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/?post_type=chapter&p=9883"},"modified":"2024-10-18T21:00:51","modified_gmt":"2024-10-18T21:00:51","slug":"finance-and-accounting-learn-it-4","status":"web-only","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/quantitativereasoning\/chapter\/finance-and-accounting-learn-it-4\/","title":{"raw":"Finance and Accounting: Learn It 4","rendered":"Finance and Accounting: Learn It 4"},"content":{"raw":"

Financial Statements Cont.<\/h2>\r\n

Understand Financial Statements Cont.<\/h3>\r\n

Balance Sheet<\/h3>\r\n

The balance sheet<\/strong> lists the company\u2019s assets, liabilities, and equity (including dollar amounts) for a specific moment in time. That specific moment is the close of business on the date listed at the top of the balance sheet. A balance sheet is like a photograph; it captures the financial position of a company at a particular moment in time. You can see from the example below that the balance sheet takes the information from the balance of accounts above and groups the items according to whether they are assets, liabilities, or equity.<\/p>\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
Metro Courier Inc.<\/strong><\/td>\r\n<\/tr>\r\n
Balance Sheet<\/strong><\/td>\r\n<\/tr>\r\n
January 31, 20XX<\/strong><\/td>\r\n<\/tr>\r\n
Assets\u00a0<\/strong><\/td>\r\n<\/tr>\r\n
Cash<\/td>\r\n[latex]$ 66,800[\/latex]<\/td>\r\n<\/tr>\r\n
Accounts Receivable<\/td>\r\n[latex]5,000[\/latex]<\/td>\r\n<\/tr>\r\n
Supplies<\/td>\r\n[latex]500[\/latex]<\/td>\r\n<\/tr>\r\n
Prepaid Rent<\/td>\r\n[latex]1,800[\/latex]<\/td>\r\n<\/tr>\r\n
Equipment<\/td>\r\n[latex]5,500[\/latex]<\/td>\r\n<\/tr>\r\n
Truck<\/td>\r\n[latex]8,500[\/latex]<\/td>\r\n<\/tr>\r\n
Total Assets<\/strong><\/span><\/td>\r\n$ 88,100<\/strong><\/span><\/td>\r\n<\/tr>\r\n
Liabilities<\/strong><\/td>\r\n<\/tr>\r\n
Accounts Payable<\/td>\r\n[latex]$ 200[\/latex]<\/td>\r\n<\/tr>\r\n
Total Liabilities<\/strong><\/span><\/td>\r\n$ 200<\/strong><\/span><\/td>\r\n<\/tr>\r\n
Equity<\/strong><\/td>\r\n<\/tr>\r\n
Common Stock<\/td>\r\n[latex]$ 30,000[\/latex]<\/td>\r\n<\/tr>\r\n
Retained Earnings<\/td>\r\n[latex]57,900[\/latex]<\/td>\r\n<\/tr>\r\n
Total Equity<\/strong><\/span><\/td>\r\n[latex]$ 87,900[\/latex]<\/strong><\/span><\/td>\r\n<\/tr>\r\n
Total Liabilities + Equity<\/strong><\/td>\r\n$ 88,100<\/strong><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n
You can see the accounting equation in action here on the balance sheet. \r\nAssets<\/mtext><\/mrow><\/mtd>=<\/mo><\/mtd>Liabilities<\/mtext><\/mrow><\/mtd>+<\/mo><\/mtd>Owners' equity<\/mtext><\/mrow><\/mtd><\/mrow><\/mtd><\/mtr>$88,100<\/mtext><\/mrow><\/mtd>=<\/mtext><\/mtd>$200<\/mtext><\/mrow><\/mtd>+<\/mo><\/mtd>$87,900<\/mtext><\/mrow><\/mtd><\/mtd><\/mtr><\/mtable><\/mrow><\/mrow><\/semantics><\/math>\r\n<\/section>\r\n
[ohm2_question height=\"400\"]8604[\/ohm2_question]<\/section>\r\n

Statement of Cash Flows<\/strong><\/h3>\r\n

Net profit or loss is one measure of a company\u2019s financial performance. However, creditors and investors are also extremely interested in how much cash a business generates and how it is used. The statement of cash flows <\/strong>is a summary of the money flowing into and out of a firm. It is the financial statement used to assess the sources and uses of cash during a certain period, typically one year. All publicly traded firms must include a statement of cash flows in their financial reports to shareholders. The statement of cash flows tracks the firm\u2019s cash receipts and cash payments. It gives financial managers and analysts a way to identify cash flow problems and assess the firm\u2019s financial viability.<\/p>\r\n

The statement of cash flows classifies cash receipts and disbursements as operating, investing, and financing cash flows. Both inflows and outflows are included within each category.<\/p>\r\n

Note that parentheses are used to distinguish negative cash flows in accounting statements. When an amount is enclosed in parentheses, it signifies that it represents a cash outflow or a reduction in cash such as the [latex](3,200)[\/latex] in the table below.<\/section>\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
Metro Courier Inc.<\/strong><\/td>\r\n<\/tr>\r\n
Statement of Cash Flows<\/strong><\/td>\r\n<\/tr>\r\n
Month Ended January 31, 20XX<\/strong><\/td>\r\n<\/tr>\r\n
\u00a0<\/strong><\/td>\r\n<\/tr>\r\n
Cash flows from operating activities<\/td>\r\n[latex]$ 50,000[\/latex]<\/td>\r\n<\/tr>\r\n
Cash flows from investing activities<\/td>\r\n\u00a0[latex] \u00a020,000[\/latex]<\/td>\r\n<\/tr>\r\n
Cash flows from financing activities<\/td>\r\n[latex]\u00a0 \u00a0(3,200)[\/latex]<\/td>\r\n<\/tr>\r\n
\u00a0 \u00a0 \u00a0 \u00a0Net Increase (Decrease) in cash<\/strong><\/td>\r\n\u00a0[latex] \u00a066,800[\/latex]<\/strong><\/td>\r\n<\/tr>\r\n
Cash at the beginning of the month<\/td>\r\n\u00a0[latex] \u00a00[\/latex]<\/td>\r\n<\/tr>\r\n
Cash at the end of the month<\/strong><\/td>\r\n$ 66,800<\/strong><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n

 <\/p>\r\n

    \r\n\t
  • Operating Activities<\/strong>\u00a0 - Tracks cash related to the operations of the business, typically includes changes in current asset and current liability accounts. Examples of inflows include cash received from sales and interest received from loans and other investments. Examples of outflows include payments to buy inventory and pay employees.<\/li>\r\n\t
  • Investing Activities<\/strong> - Tracks cash related changes in other assets outside of the operation of the business. Examples of inflows include cash generated by selling assets like equipment, buildings, or machinery. Examples of outflows include the purchase of long-term assets and investments.<\/li>\r\n\t
  • Financing Activities<\/strong> - Tracks cash used to fund the business by raising capital through investors (equity) or loans (liabilities) as well as the repayment of loans.<\/li>\r\n<\/ul>\r\n
    [ohm2_question height=\"400\"]8605[\/ohm2_question]<\/section>","rendered":"

    Financial Statements Cont.<\/h2>\n

    Understand Financial Statements Cont.<\/h3>\n

    Balance Sheet<\/h3>\n

    The balance sheet<\/strong> lists the company\u2019s assets, liabilities, and equity (including dollar amounts) for a specific moment in time. That specific moment is the close of business on the date listed at the top of the balance sheet. A balance sheet is like a photograph; it captures the financial position of a company at a particular moment in time. You can see from the example below that the balance sheet takes the information from the balance of accounts above and groups the items according to whether they are assets, liabilities, or equity.<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
    Metro Courier Inc.<\/strong><\/td>\n<\/tr>\n
    Balance Sheet<\/strong><\/td>\n<\/tr>\n
    January 31, 20XX<\/strong><\/td>\n<\/tr>\n
    Assets\u00a0<\/strong><\/td>\n<\/tr>\n
    Cash<\/td>\n[latex]$ 66,800[\/latex]<\/td>\n<\/tr>\n
    Accounts Receivable<\/td>\n[latex]5,000[\/latex]<\/td>\n<\/tr>\n
    Supplies<\/td>\n[latex]500[\/latex]<\/td>\n<\/tr>\n
    Prepaid Rent<\/td>\n[latex]1,800[\/latex]<\/td>\n<\/tr>\n
    Equipment<\/td>\n[latex]5,500[\/latex]<\/td>\n<\/tr>\n
    Truck<\/td>\n[latex]8,500[\/latex]<\/td>\n<\/tr>\n
    Total Assets<\/strong><\/span><\/td>\n$ 88,100<\/strong><\/span><\/td>\n<\/tr>\n
    Liabilities<\/strong><\/td>\n<\/tr>\n
    Accounts Payable<\/td>\n[latex]$ 200[\/latex]<\/td>\n<\/tr>\n
    Total Liabilities<\/strong><\/span><\/td>\n$ 200<\/strong><\/span><\/td>\n<\/tr>\n
    Equity<\/strong><\/td>\n<\/tr>\n
    Common Stock<\/td>\n[latex]$ 30,000[\/latex]<\/td>\n<\/tr>\n
    Retained Earnings<\/td>\n[latex]57,900[\/latex]<\/td>\n<\/tr>\n
    Total Equity<\/strong><\/span><\/td>\n[latex]$ 87,900[\/latex]<\/strong><\/span><\/td>\n<\/tr>\n
    Total Liabilities + Equity<\/strong><\/td>\n$ 88,100<\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
    You can see the accounting equation in action here on the balance sheet.
    \nAssets<\/mtext><\/mrow><\/mtd>=<\/mo><\/mtd>Liabilities<\/mtext><\/mrow><\/mtd>+<\/mo><\/mtd>Owners’ equity<\/mtext><\/mrow><\/mtd><\/mrow><\/mtd><\/mtr>$88,100<\/mtext><\/mrow><\/mtd>=<\/mtext><\/mtd>$200<\/mtext><\/mrow><\/mtd>+<\/mo><\/mtd>$87,900<\/mtext><\/mrow><\/mtd><\/mtd><\/mtr><\/mtable><\/mrow><\/mrow><\/semantics><\/math>
    \n<\/section>\n