ACC225 Week 1 Checkpoint

Checkpoint – Week One –

Due Date: Day 5 – Individual Forum, midnight Arizona Time

Consider that you have been asked to explain financial statements to someone who knows nothing about accounting.  Discuss in 200-300 words,

            each of the four financial statements and

            explain the different components of each statement and

            what each statement tells us about a business.

Review the information in Chapter One on financial statements to assist in your answer.   

            There are four financial statements that are most used in accounting, they are: Income statement, statement of owner’s equity, balance sheet and the statement of cash flows. 

            An income statement is simply a statement that shows you the total of your revenues, that is incoming, and your expenses, that is outgoing.  It also totals the two to show you your net income, or the difference between the two.  This statement will tell you how much profit you are making. 

            Statement of Owner’s Equity is a statement that will show you your total investments added to net income and minus any withdrawals to show you your overall equity for any given period of time.  This statement will tell you how your equity is holding up over a period of time.

            A balance sheet is just that, it balances your assets, liabilities, and your equity.   Assets are everything from cash on hand to your supplies, equipment or even your property.  Liabilities are all items you are paying money out on.  Equity comes from your owner’s equity statement.  This shows you exactly how much money you have left over after all expenses are paid. 

            Statement of Cash Flows is a statement that basically is a breakdown of each area of cash whether incoming or outgoing and where it is coming from or going to.  It balances the totals at the bottom to come up with your net income and it is also used on your balance sheet.