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           Financial accounting information is conveyed through a standardized set of reports. You have already been introduced to the balance sheet. The othe fundamental financial statements are the income statement, statement of retained earnings, and statement of cash flows. There are many rules that govern the form and content of each financial statement. At the same time, those rules are not so rigid as to preclude variations in the exact structure or layout. Balance sheet can be presented as a horizontal or vertical layout, and each approach is equally acceptable. The basic form and content of each core financial statement is as follows:

       INCOME STATEMENT: A summary of an entity's results of operation for a specified period of time is revealed in the income statement, as it provides information about revenues generated and expenses incurred. The difference between the revenues and expenses is identified as the net income or net loss. The income statement can be prepared using a single-step or a multiple-step approach, and might be further modified to include a number of special disclosures relating to unique items. The income statement relates to activies of a specified time period (e.g. year, quarter, month), as is clearly noted in its title:


    AMERICA CORPORATION
    Income Statement
    For the Year Ending December 31, 2009
    Revenues
                       

       Service to Customers
    $750,000

       Interest Revenue
    15,000

          Total Revenues

       $765,000
    Expenses


       Salaries
    $235,000

       Rent
    115,000

       Other Operating Expenses
    300,000

          Total Expenses

       $650,000
       Net Income

       $115,000
     

    THE STATEMENT OF RETAINED EARNINGS: The balance sheets can reveal if retained earnings increase or decrease, in response to events that impact income. The retained earnings can also be reduced by dividends paid to shareholders. The statement of retained earnings provides a succint reporting of these changes in retained earnings form one period to the next. In essence, the statement is nothing more than a reconciliation or "bird's-eye view" of the bridge between the retained earnings amount appearing on two successive balance sheets:


    AMERICA CORPORATION
    Statement of Retained Earnings
    For the Year Ending December 31, 2009
    Retained earnings - January 1, 2009
         $400,000     
       Plus: Net income
    115,000
                                                                                        
    $515,000
       Less: Dividends
    35,000
    Retained earnings - December 31, 2009
    $480,000


    THE BALANCE SHEET: The balance sheet focuses on the accounting equation by revealing the economic resources owned by an entity and the claims against those resources (liabilities and owners' equity). The balance sheet is prepared as of a specific date, whereas the income statement and statement of retained earnings cover a period of time. Accordingly, it is sometimes said that balance sheets portray financial position (or condition) while other statements reflect results of operations. America's balance sheet is as follows:


    AMERICA CORPORATION
    Balance Sheet
    December 31, 2009
    Assets

       Cash

    $192,000
       Accounts receivable

    248,000
       Land

    450,000
       Other assets

    10,000
       Total Assets

    $900,000
    Liabilities


       Salaries payable
    $34,000

       Accounts payable
    166,000

       Total Liabilities

    $200,000
    Stockholders' Equity


       Capital stock
    $220,000

       Retained earnings
    480,000

       Total Stockholders' Equity

    700,000
    Total Liabilities and Equity

    $900,000


    STATEMENT OF CASH FLOWS: The statement of cash flows details the enterprise's cash flows. This operating statement reveals how cash is generated and expended during a specific period of time. It consists of three unique sections that isolate the cash inflows and outflows attributable to (a) operating activities, (b) investing activities, and (c) financing activities. Notice that the cash provided by operations is not the same thing as net income found in the income statement. This result occurs because some items hit income and cash flows in different periods. For instance,  if a companny generates income from a service provided on account, the transaction will increase income without a similar effect on cash.
    Suffice it to say that the underpinnings of the statement of cash flows require a fairly complete knowledge of basic accounting. The following is the statement of cash flows for America Corporation:


    AMERICA CORPORATION
    Statement of Cash Flows
    December 31, 2009
    Operating activities


       Cash received from customers
    $720,000
     
       Cash received from interes
    15,000

       Cash paid for salaries
    (240,000)

       Cash paid for rent
    (115,000)

       Cash paid for other items
    (300,000)

            Cash provided by operations

    $80,000
    Investing activities


       Purchase of land

    (250,000)
    Financing activities


       Payment of dividends

    (35,000)
       Decrease in Cash

    ($205,000)
    Cash, January 1

    397,000
    Cash, December 31

    $192,000

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