Carleton University

Introduction to Financial Statements

Agenda

January 22, 2003

1. Financial Statement Users

2. Financial Statement Components

• Balance Sheet - Assets, Liabilities, Equity

• Income Statement - Revenue, Expenses, Net Income

3. Sample Financial Statements

• Acme Services Inc.

• R&D Co.

• Car Dealership Ltd.

4. Evaluation of Financial Statements

5. Questions

6. Assignment - Service Corp.

Financial Statements Users

Who will be reading the financial statements?

< the owner operator

< public shareholders

< a banker or creditor

< a potential purchaser of the business

< government

Financial Statements Components

Balance Sheet

Provides information about the nature of an enterprise’s resources or investments, its obligations to creditors, and the owners’ equity in net enterprise resources.

Asset

< Economic resources

Liabilities

< Economic obligations

Equity

< Economic wealth

Assets - Liabilities = Equity

Financial Statements Components

Income Statement

Provides information concerning the revenue earned during a period and the expenses related to earning those revenues.

Revenue

< Economic inflows

Expenses

< Economic outflows

Revenue - Expenses = Income before income taxes

Income before income taxes - Taxes = Net income

Balance Sheet

September 30, 2002, with comparative figures for 2001, unaudited

2002 2001

Assets

Current assets

Cash $ 447,833 $ 161,053

Accounts receivable 662,318 877,592

Prepaid expenses 13,699 4,417

1,123,850 1,043,062

Capital assets (Note 2) 152,633 93,949

$ 1,276,483 $ 1,137,011

Liabilities and Shareholders' Equity

Current liabilities

Accounts payable and accrued charges $ 260,446 $ 261,092

Income taxes 23,655 28,780

Due to shareholders 194,726 273,500

478,827 563,372

Shareholders' equity

Share capital (Note 3) 16,200