The Financial Statements (Financial Accounting Tutorial #5)

The Financial Statements (Financial Accounting Tutorial #5)

financial statements the end results of all that financial information that is accumulated and reported all those transactions they're summarized into those financial statements so that's what we're going to be talking about in this presentation we're going to be talking with the four general-purpose financial statements and their like I just said there are four of them and they are basically the weight of a brick because the size of them is gigantic they're usually in the in the number of hundreds of pages sometimes for very large companies or corporations like Walmart or AT&T or Apple and so on so of course the four financial statements themselves aren't hundreds of pages it's just all the notes that go with it in the supplemental information are and don't worry I I know how to spell the word brick I actually have this written like that because it is an acronym i commonly give students to remember the financial statements because the financial statements themselves are basically like the weight of a break-in that they're there so they're so dense with information so let me talk about each one of them give you the names of each the first is the balance sheets and don't worry we'll be discussing what each of them do in a kind of simple manner because I don't want to confuse you too much on this tutorial is just basically an introduction to kind of your your statements so the retainer in statement is the second one the income statement is the third you probably have heard of that one it's fairly fairly common in press releases and usually they'll look at the income statement cause it gives them an idea of the performance which we'll talk about as well and of course the cash flow statements and these four financial statements even though I did write this acronym as brick that's not actually the way in which they're prepared they're prepared in the order of the income statement first the income statement first and I'll tell you why in a sec why they're prepared like this the income statement first then the retained earnings and then the balance sheets and of course finally the cash flow statement and the reason why they go in this kind of order is because each following statement or each one that precedes it is kind of like a precursor to the next statement you kind of need a figure from the income statement to prepare the retained earnings statement you need a figure from the retained earnings statement to finalize the balance sheet and so on and for the income statement you actually need the final income figure or the net loss in order to prepare the retained earnings statement and then when you prepare the retained earnings statement you'll have the the final retained earnings number which can go on the balance sheet and then you can prepare the balance sheet and once you have your balance sheet figure it out one of your assets is going to be cash which will end up on the cash flow statement so they all kind of flow into one another these are kind of like waves and arrows I guess but yeah they all flow into one another and you should remember them in this order that's the way they are prepared so let's actually talk about them individually and dive into kind of a brief explanation give you some examples so you can always pause it rewind it that's the great thing about these videos and the first financial statement we'll be talking about is the one that we prepare first which is the income statement and the income statement you can think about it and think of a ruler or a measuring stick because that's kind of what the income statement is it measures and kind of I'm going to put in double quotes measures because what it measures is the performance performance of the company so how well they actually did in that quarter or the year and the way it does that is by recording the revenue and the expenses and you'll come to learn what these terms are in the next few tutorials but you probably have some general idea as to what revenues and expenses are and after that when you have the revenues and expenses you can determine whether you made income or whether you have a net loss and it's all decided upon whether income is is if revenues exceed expenses and a net loss RF expenses exceed revenues so that is the income statement think about it as a measuring stick or a ruler because it always looks at the performance next one we'll be talking about is the retained earnings statement and just open another layer the retained earnings statement number two and the retained earnings statement can be thought of as big pie because they look at how much is distributed to owners in the form of form of dividends if if dividends are being paid out or whether the other amounts or the residual amounts how much is retain so how much is left within the company to actually continue to grow the company so some companies decide to retain all their earnings and don't pay out any dividends it just basically the retained earnings is an idea of the distribution of profit because it it takes that's that income figure let's say you do have income from your income statement and you see how much of that income is actually retained and how much is distributed to owners if there is any so that's basically the retained earnings statement think about it as one big pie and I should probably say that dividends are normally paid out if you have shareholders that kind of demand some kind of return or if the company is kind of a growth stock and that they want to first grow before issuing dividends if they're a growth stock then they might decide to retain all their income and then reinvest it in things like assets so like capital assets like property and equipment so they can manufacture more units and sell more units and grow quicker so retaining usually leads to quicker growth for our company so that's the retained earnings statement third one is the balance sheet and you'll actually find out why it's called the balance sheet once we talk about the accounting equation but I'm just going to keep it to the financial statements in this tutorial the balance sheet basically is is I'm going to draw a camera here because it is basically a snapshot it's like the best camera I control the snapchat or a snapshot I should say snapchat is um is an Android or iPhone application and this is definitely a snapshot and that it looks at the financial position of your company so when you look at the balance sheet you're basically looking at the position so how how what what basically is encapsulated within your company so looks at the assets your assets of course are used to generate revenues your liabilities and equity so those are the three elements that are within the balance sheet and liabilities are just an economic sacrifice I usually have to take in order to usually usually uh to receive assets or to to purchase assets so let's I guess an example is if you want inventory so that you can sell it and generate revenues you might have to pay on credit or use a payable and that would be forming a liability because you'll have to pay them back at a future date in equity you can think of as the outstanding shares of the company at the moment to just keep it as a very basic understanding of what equity is so those three elements are covered in the balanced treatment basically gives you an idea of all all of the accounts within your your company so that's the balance sheet think about it as a camera it usually does help on test thinking about all these as certain objects and finally the fourth one is the cash flow statement I guess I'll draw it in green because hopefully you'll have a positive cash flow statement so that you're not running into cash crunches and I'll talk about cash crunches in a second so the cash flow statement basically looks at the sources and the uses of cash so basically sources are money coming in or cash coming in and uses are – going out and you can kind of think about the cash flow statement as as kind of like veins and arteries within the human body because veins and arteries carry blood they transport blood veins carry blood what is it towards the heart arteries carry blood away or from the hearts to the to the other organs so blood is constantly going in and out hopefully you're not very sensitive to the topic of blood or else this analogy doesn't work that well but yeah the the cash flow statement can be thought of as your veins and arteries because blood is constantly coming in and out and so is cash a cash is constantly coming in and out of a company and if your veins and arteries ever act up there's going to be a huge problem and that problem for our company is usually called a cash crunch or liquidity issues in that we'll have a shortfall of cash and that creates problems for their operation so they might have to issue bonds or get a loan from the bank in order to continue operating so those are like the four types of statements hopefully those analogies kind of helped you understand what each of them kind of represents and that's basically the financial information its final into these statements all that information is summarized in these statements and then these statements each give you an idea starting with the income statement your performance second your balance sheets your position third or i should say second year retained earnings statement looking at the profit whether it's distributed or retained third your balance sheet so your financial position and your cash flow statement which basically looks at the flow of cash within your company okay so I think I'm over my time limit definitely for this tutorial make sure to subscribe like always leave any comments if you have any issues understanding the material and thanks for watching if you have any questions we're going to accounting or any of the Retiro within our videos you can tweet us at note pirate you can like on Facebook to receive updates or to share any quick anecdotes about our videos might have helped and like always thanks for watching us on YouTube

16 thoughts on “The Financial Statements (Financial Accounting Tutorial #5)

  1. Great video, but I do have a question as I am following your video with my book. Is the cash flow statement also called the classified balance sheet? With the classified balance sheet I am looking at, it does break down assets by stuff like cash, prepaid rent, supplies, etc, and it also breaks down liabilities by stuff like accts payable, unearned service revenue. Sounds like what you are describing.

  2. Hi – a rookie question. If i start up a company with 300 shares and each share value is $1, does it come under retained statement?

  3. I feel like I was in a classroom .  Excellent the way you teach. very clear and neat.  ai enjoyed it and have learned alot.  . Gracias!

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