MODULE 3: Introduction to Balance Sheets The Objectives for this Module are: -To understand the difference between a balance sheet and an income statement -To understand how financial reports are related to the balance sheet and income statement, including: -Cash Flow Statements -Portfolio Reports -Non-Financial Data Reports

1. A Financial Refresher
MODULE 3
Introduc)on
to
Balance
Sheets
Introduction
Concepts & Terms
Balance Sheets vs. Income Statements
Next Steps

2. Introduction
MODULES 1 and 2 are on Financial Statements that emphasize the
income and expenses of a business. Yet, businesses own things that are
neither income or expenses. Businesses buy things that can last for more
than one financial period and basic fairness would require us to charge
expenses to the period where it relates and or apply the matching
principle. Unfortunately, the Balance Statement has to be focused on a
particular period only, hence there is a need for another statement in order
to provide another piece of the picture. This is the Income Sheet and we
will take a look at this and the Income Statement in slightly more complex
business examples in this module. First let's review the terms.

3. Concepts & Terms
Balance Sheets
Balance Sheets provide a
snapshot of the business at
a particular point in time. It
shows everything in
monetary terms, such as an
organization’s assets,
liabilities, etc. Any balance
sheet reflects sources of
money that the business
received and the uses of the
money or where the
organization has decided to
utilize the money.
Activity: FlashCard Practice

4. Concepts & Terms
Income Statements
A statement that summarizes the entity’s income and expenses over specific a
period of time is an Income Statement. It is a financial statement that reports
the company’s revenues and expenses over an interval of time. It shows
whether the company was able to generate enough revenue to cover the
expenses of running the business. If revenues exceed expenses, then the
company reports net income:
Revenues − Expenses = Net income
If expenses exceed revenues, then the company reports a net loss. The
statement is also called Profit & Loss (P&L), Income and Expenses, and other
names.
Activity: FlashCard Practice

5. Balance Sheets vs.
Income Statements
Balance Sheets provide a financial snapshot for a single point in time.
Income Statements provide a financial summary for a period of time.
Let's consider a plant growing in a flower pot:
You can take a picture in the beginning when
The pot just has dirt and then take another
snapshot at the end when a flower is in bloom.
These two snapshots are two separate Balance
Sheets. During the period, seeds, water, and sunlight were added. These
elements do not appear in the two snapshots, however the result can be
seen in the last snapshot. Like the elements and changes that occurred
but not seen in the flower pot, an Income Statement is a summary as to
what happened during the period in between two Balance Statements.
Activity: FlashCard Practice

6. Next Steps...
Once you have finished reviewing these slides you may proceed to the
following sections of this Module (if you opened these slides in a
separate window, close out this window or tab and return to MODULE 3
in CourseSites):
• Review the Resources
• Complete the FlashCard Review
• Check your understanding with the Self-Review
Note: A PDF version of this slide deck is also available for download
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