Linkage of financial statements

1. Linkage of financial statements
 The four Financial Statements are linked
with each other and linked across time.

2. Order of financial statement preparation
1. Preparation of Income statement using the
statement of comprehensive income
accounts.
2. Preparation of statement of financial
position using the updated retained
earnings accounts.

3. 3. Preparation of Statement of stockholder’s
equity.
4. Preparation of statement of cash flow.

4. Statement of Financial position
 reports a company’s financial position at a
point in time.
It is the listing of the resources that an
enterprise has to operate with as well as a
listing of claims against those resources
represented by both creditors and owners.

5. Ways of financing asset
1. Owner Financing – can raise money from
shareholders.
2. Non owner Financing - can raise money
from banks or other creditor and suppliers.

6.  Assets – resources controlled by an entity
as a result of past event and from which
future economic benefits are expected to
flow to the entity.
 Liabilities – present obligation of an entity
arising from past event.

7.  Equity – owners claim on assets.
Investing = Financing

9. Working capital
 The difference between Current Asset
and Current Liability.
Net Operating Working Capital -
difference between current assets and non –
interest bearing current liabilities.

10.  Investing Activities – it represented by the
company’s asset.
Financing Activities - involve long-term
liabilities, stockholders' equity (or owner's
equity) , and changes to short-term
borrowings.

11. Statement of comprehensive income
 The change in equity during a period
resulting from transactions and other events
other than changes resulting from
transactions with owners in their capacity as
owners.

12.  Net Income – reflects the profit to owners
for that specific period.
Income Statement lay out
Revenues
- Cost of Goods Sold
_____________________
= Gross Profit
- Expense
-----------------------------------
Net Income ( Loss)

15. Operating Activities – it use company
resources to produce, promote and sell its
product and services.
Input markets generate most expenses while
Output markets generate revenue to
customers.

16. Statement of stockholders’ equity
 It is a formal statement which shows the
movements in the elements or components of
the shareholders' equity.

17.  Contributed capital represents the cash
that the company received from sales of
stocks to stockholders less any funds
expended for the repurchase of stock.

18.  Retained Earnings – cumulative total
amount of income that the entity has earned
that has been retained in the business and
not distributed to shareholders in the form of
dividends.
Beg. Retained Earnings + Net Income –
Dividends = Ending retained earnings

19. Statement of cash flow
 reports the change in a company’s cash
balance over a period of time.
Component of financial statements
summarizing the operating, investing and
financing activities of an entity.