Financial Statements for a Corporation

Financial Statements for a CorporationFinancial Statements for a Corporation

Making Accounting Relevant

Public corporations often offer Web

sites where they provide financial data.

Making Accounting Relevant

Public corporations often offer Web

sites where they provide financial data.

Discuss what types of financial

information might be of interest to

potential stockholders.

Discuss what types of financial

information might be of interest to

potential stockholders.

Section 1 The Ownership of a Corporation

Section 1 The Ownership of a Corporation

What You’ll Learn

Which equity accounts are used in

corporation accounting.

How equity earned through business

profits is reported.

Which end-of-period financial

statements are prepared for a

corporation.

What You’ll Learn

Which equity accounts are used in

corporation accounting.

How equity earned through business

profits is reported.

Which end-of-period financial

statements are prepared for a

corporation.

Why It’s ImportantTo properly prepare end-of-period

financial reports for a corporation, you need to understand how equity for a corporation is handled and the differences in equity between corporations and sole proprietorships.

Why It’s ImportantTo properly prepare end-of-period

financial reports for a corporation, you need to understand how equity for a corporation is handled and the differences in equity between corporations and sole proprietorships.

Section 1 The Ownership of a Corporation (cont'd.)Section 1 The Ownership of a Corporation (cont'd.)

Key Terms Capital Stock stockholders’ equity retained earnings comparability

Key Terms Capital Stock stockholders’ equity retained earnings comparability

reliability relevance full disclosure materiality

reliability relevance full disclosure materiality

Recording the Ownership of a CorporationRecording the Ownership of a Corporation

Capital Stock represents the

investments in the corporation

by its stockholders (owners).

Capital Stock is classified as a

stockholders’ equity account.

Capital Stock represents the

investments in the corporation

by its stockholders (owners).

Capital Stock is classified as a

stockholders’ equity account.


Recording the Ownership of a Corporation (cont'd.)



Business Transaction

On January 1, stockholders invested $25,000 in exchange for shares of stock of the corporation, Receipt 997.

ANALYSIS Identify 1. The accounts affected are Cash in Bank and Capital Stock. Classify 2. Cash in Bank is an asset account. Capital Stock is a stockholders’ equity account. + / – 3. Cash in Bank is increased by $25,000. Capital Stock is increased by $25,000.




Business Transaction On January 1, stockholders invested $25,000 in

exchange for shares of stock of the corporation, Receipt 997.

DEBIT-CREDIT RULE 4. Increases to asset accounts are recorded as debits. Debit Cash in Bank for $25,000.

5.Increases to stockholders’ equity accounts are recorded as credits. Credit Capital Stock for $25,000.






T ACCOUNTS 6. Insurance PrepaidExpense Insurance

Debit

+

25,000

Credit

+

25,000

Credit

–

Debit

–






JOURNAL ENTRY 7.

Stockholders’ EquityStockholders’ Equity

Equity contributed by stock-

holders

Equity earned through business

profits

Retained earnings represents the

increase in stockholders’ equity

from the portion of net income

not distributed to the

stockholders.

Equity contributed by stock-

holders

Equity earned through business

profits

Retained earnings represents the

increase in stockholders’ equity

from the portion of net income

not distributed to the

stockholders.


Characteristics of Financial Information

Financial statements are used by many groups.

Characteristics of Financial Information

Financial statements are used by many groups.

Managers analyze the financial

statements to help evaluate past

performance and to make informed

decisions.

Stockholders are interested in the

performance, potential future growth,

and success of the business.

Managers analyze the financial

statements to help evaluate past

performance and to make informed

decisions.

Stockholders are interested in the

performance, potential future growth,

and success of the business.


Characteristics of Financial Information (cont'd.)

Characteristics of Financial Information (cont'd.)

Creditors want to know the ability of

the business to pay its debts.

Government agencies, employees,

consumers, and the general public

are also interested in the financial

position of the business.

Creditors want to know the ability of

the business to pay its debts.

Government agencies, employees,

consumers, and the general public

are also interested in the financial

position of the business.


ComparabilityComparability

For accounting information to be

useful, it must be understandable

and comparable.

Comparability allows accounting

information to be compared from

one fiscal period to another.

For accounting information to be

useful, it must be understandable

and comparable.

Comparability allows accounting

information to be compared from

one fiscal period to another.


ReliabilityReliability

Users of accounting data assume

that the data are reliable.

Reliability relates to the

confidence users have that the

financial information is

reasonably free from bias and

error.

Users of accounting data assume

that the data are reliable.

Reliability relates to the

confidence users have that the

financial information is

reasonably free from bias and

error.


RelevanceRelevance

Not all information about a

business is relevant to financial

decision making.

Relevance means that the

information “makes a difference”

to a user in reaching a business

decision.

Not all information about a

business is relevant to financial

decision making.

Relevance means that the

information “makes a difference”

to a user in reaching a business

decision.


Full DisclosureFull Disclosure

To “disclose” means “to uncover

or to make known.”

Full disclosure means that

financial reports include enough

information so that the report is

complete.

To “disclose” means “to uncover

or to make known.”

Full disclosure means that

financial reports include enough

information so that the report is

complete.


MaterialityMateriality

If something is “material,” it is

important.

Materiality means that

information deemed relative

should be included in financial

reports.

If something is “material,” it is

important.

Materiality means that

information deemed relative

should be included in financial

reports.


Check Your UnderstandingCheck Your Understanding

What is the purpose of

preparing the same types of

financial statements at the end

of each period?

What is the purpose of

preparing the same types of

financial statements at the end

of each period?


Financial Statements for a Corporation

Documents

Transcript of Financial Statements for a Corporation