the statement of owner equity examines changes in owner equity in three categories: 1)retained...
TRANSCRIPT
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THE STATEMENT OF OWNER EQUITY
• EXAMINES CHANGES IN OWNER EQUITY IN THREE CATEGORIES:
1) RETAINED EARNINGS AND CONTRIBUTED CAPITAL
2) PERSONAL NET WORTH
3) CHANGE IN VALUATION EQUITY
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• AN IMPORTANT ASPECT OF UNDERSTANDING
THE FINANCIAL PROGRESS OF A BUSINESS IS TO SEPARATE THE CHANGE IN EQUITY FROM RETAINED EARNINGS FROM THE CHANGE IN EQUITY FROM CHANGES IN THE MARKET VALUE OF ASSETS.
• WITHDRAWALS OF NET INCOME OR RETAINED EARNINGS FOR FAMILY LIVING AND PERSONAL INVESTING ARE CRITICAL ITEMS IN RECONCILING OWNER EQUITY.
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• CHANGES IN OWNER EQUITY =
NET INCOME
MINUS WITHDRAWALS
PLUS (MINUS) CAPITAL ADDITIONS (DISTRIBUTIONS)
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• WITHDRAWALS REPRESENT ANY USE OF NET INCOME OR BUSINESS CAPITAL WHICH MAKES THAT INCOME OR CAPITAL NO LONGER AVAILABLE FOR BUSINESS USE.
• CHANGE IN PERSONAL NET WORTH IS A SIMPLE COMPARISON OF BEGINNING AND ENDING PERSONAL NET WORTH FIGURES. ONLY EFFECTS THE MARKET VALUE MEASURE OF OWNERS EQUITY.
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CHANGE IN VALUATION EQUITY AFFECTS ONLY THE MARKET VALUE OWNER EQUITY. VALUATION EQUITY IS THE DIFFERENCE BETWEEN THE CASH VALUATION NET WORTH AND THE MARKET VALUATION NET WORTH.
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STATEMENT OF CASH FLOWS
• THE STATEMENT OF CASH FLOWS FOCUSES ON CASH FLOWS AND SEGREGATES THEM INTO CASH FLOWS FROM OPERATING, INVESTING, AND FINANCING ACTIVITIES.
• OPERATING ACTIVITIES GENERALLY INVOLVE PRODUCING AND DELIVERING GOODS AND PROVIDING SERVICES.
• INVESTING ACTIVITIES FOCUS ON CASH FLOWS FROM THE PURCHASE AND SALE OF CAPITAL ASSETS AND NON-FARM ASSETS.
• FINANCING ACTIVITIES INCLUDE BORROWING AND REPAYMENT OF LOANS.
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• THE STATEMENT OF CASH FLOWS LINKS
TOGETHER CASH , ACCRUAL INCOME AND BALANCE SHEET INFORMATION.