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Understanding Financial
Statements
Balance Sheet
What is a Balance Sheet?A statement that shows
– (1) How much money a company has– (2) How much money a company owes– (3) How much the company is worth (value of
company)Follows the accounting equation
Assets = Liabilities + Owner’s Equity
Sample Balance
Sheet
Label the Balance
Sheet
Label the Balance
Sheet1. Company Name
Balance SheetDate
Label the Balance
Sheet1. Company Name
Balance SheetDate
2. Total Assets – how much you have
Label the Balance
Sheet1. Company Name
Balance SheetDate
2. Total Assets – how much you have
3. Total Liabilities – how much you owe
Label the Balance
Sheet1. Company Name
Balance SheetDate
2. Total Assets – how much you have
3. Total Liabilities – how much you owe
4. Owner’s Equity– how much you are worth
You make $400 (after taxes) and you owe $275 in bills. What is your worth?
$400 (asset) - $275 (liability)= $125 (worth)
C heck Point….
Income
Statement
What is an Income Statement?
A statement that shows a company’s profit.How much was sold or made? ( revenue)How much was spent? (expense)How much is left over? (net income/profit)
Revenue – Expenses = Net Income/Loss
Sample Income
Statement
Label the Income
Statement1. Company Name
Income StatementDate
Sample Income
Statement1. Company Name
Income StatementDate
2. Total Revenue - how much was sold
Sample Income
Statement1. Company Name
Income StatementDate
2. Total Revenue - how much was sold
3. Total Expenses - how much was spent
Sample Income
Statement1. Company Name
Income StatementDate
2. Total Revenue - how much was sold
3. Total Expenses - how much was spent 4. Net
Income/Loss- how much profit
You have $5000 in sales
Your company had $1200 in expenses
Did you have a Net Income or Loss? What was the amount?
Revenue $5000 – Expenses $1200 = Net Income $3800
C heck Point….
Look at the Balance Sheet and Income Statements for Companies 1, 2 and 3.
Answer the questions with the person next to you.
Evaluating Financial
Statements
Review….
• What accounts would you find listed on the balance sheet?
• Assets• Liabilities• Owner’s Equity
Review….
• What is the term used for how much you owe?
• Liability
Review….
• How do you calculate how much you are worth?
• Assets – Liabilities = Owner’s Equity (worth)
Review….
• What financial statement shows how much profit you made and how is this calculated?
• Income Statement• Revenue - Expenses