ACCTNG 2400 1st Edition Lecture 4Outline of Last Lecture I. Assetsa. Types and examplesII. Liabilitiesa. Types and examplesIII. Equitiesa. Types and examplesOutline of Current Lecture II. 4 Basic Financial Statementsa. Balance Sheetb. Statement of Retained Earningsc. Income statementd. Statement of Cash FlowsIII. Order of statement prepIV. Unit of measure assumption and headingCurrent Lecture4 Basic Financial StatementsFinancial statements – 4 accounting reports that can be prepared at any time during the year, but usually are monthly or quarterly and annually.1. Balance Sheet – statement of current financial positiona. Includes amounts of assets and their total, liabilities and their total, and stockholders’ equity.b. Using the basic accounting equation, the balance sheet should come out even. The total liabilities plus stockholders’ equity will equal the total assets if correct.These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.2. Statement of Retained Earnings – reports the way that net income and the distribution of dividends affect the financial position of the company during the period.a. (Retained earnings for beginning of the period) + (net income during that period)- (dividends paid out during that period) =(Retained Earnings balance for the end of the period)3. Income Statement – reports the amount of revenue less expenses for a time period.a. (Total Revenues) – (Total expenses) = (Net Income)4. Statement of Cash Flows – reports the operating, investing, and financing activities that caused increases and decreases in cash during the perioda. Operating – Activities that directly relate to running the business to earn profit including buying supplies, making the product, cleaning the store, buying advertising and fixing equipment, etc.b. Investing – Activities involved with buying and selling productive resources with long lives (buildings, land, equipment and tools), purchasing investments, lendingto others.c. Financing – any borrowing from banks, repaying loans, receiving contributions from stockholders, or paying dividendsOrder of Statement Prep1. Income Statement2. Statement of retained earnings3. Balance sheet4. Statement of cash flows The statements are prepared in this order because each statement provides information needed for the following statemento Net income from the income statement is used in the statement of retained earningso Ending retained earnings from the statement of retained earnings is used in the balance sheeto “Cash” from the balance sheet should match the ending cash balance on the statement of cash flowsUnit of measure Assumption – results of business activities should be reported in an appropriate and consistent monetary unit, which in the US is the US dollar.Heading – All four financial statements need a heading that includesa. Who: the name of the businessb. What: Title of the statementc. When: accounting period (on income, cash flow and retained earnings statements only)d. When: Point in time (balance sheet