The 3 Principal Financial Statements free essay sample

Retained Earnings – Cumulative earnings/profits of the firm that haven’t been paid out as dividends 1)Retained Earnings Net accumulation of earnings of the firm since its beginning †¢Increased by net income and reduced by losses, and by the payment of dividends to the shareholders or owners †¢For any accounting period: REEB = REBB + NI – D 2)Recording Transactions †¢General Rules: Debits increase the balance in Asset and Expense accounts and credits increase the balance in Liability, Contributed Capital, and Revenue accounts †¢Super T-account : II. The Income Statement How profitable is the firm? Measured over a period of time.Net Income (Earnings): benefices net III. The Statement of Cash Flows Is the firm generating sufficient cash flows from its customers to finance operations and to acquire buildings and equipment? Must it seek new funds from lenders or owners? measured over a period of time. 3 types of cash flows: †¢Operating Cash Flows : cash from customers less cash paid in carrying out the firm’s operating activities †¢Investing Cash Flows : cash paid to acquire noncurrent assets less amounts from any sale of noncurrent assets †¢Financing Cash Flows : cash from issues of long-term debt or new capital less dividends