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  • Hi.

  • Else here.

  • And in this video, we'll be exploring financial statements,

  • what they look like, and how they interconnect.

  • Why are financial statements necessary?

  • Remember that external users, mainly investors, lenders,

  • and other creditors, have to make decisions

  • about resource allocations, where to put their money.

  • They use financial statements to answer questions

  • that they may have about a business.

  • From the video on business organizations,

  • we know that corporations can be either public or private.

  • Public corporations must follow IFRS, International Financial

  • Reporting Standards.

  • Private corporations can follow either IFRS or ASPE, Accounting

  • Standards for Private Enterprises.

  • Corporations who follow IFRS, whether public or private,

  • must produce the following financial statements--

  • the income statement, statement of comprehensive income,

  • statement of changes in equity, statement

  • of financial position, and finally, a statement of cash

  • flow.

  • A private company who follows ASPE

  • produces slightly different statements--

  • an income statement, statement of retained earnings, balance

  • sheet, and a cash flow statement.

  • If you wish to learn about these statements,

  • go to my video on ASPE financial statements.

  • IFRS required financial statements must be completed

  • in a specific order, and we'll start

  • with the income statement.

  • An income statement reports the results of a company's

  • day-to-day operation.

  • It reports the revenues, less the expenses incurred

  • to generate that revenue, to obtain a profit or loss figure.

  • The income statement measures the company's performance

  • within a period of time, either annually, quarterly,

  • or monthly.

  • To better understand the income statement,

  • we have to understand the two main elements, revenues

  • and expenses.

  • Revenues are an increase in assets, either cash or accounts

  • receivable, from selling a product or providing a service.

  • Other forms of revenue are interest income, royalty

  • income, or rental income.

  • Expenses are the cost of anything

  • which is consumed, used, or incurred to help earn revenue

  • during that period of time.

  • Common expenses are salaries, advertising, depreciation,

  • utilities, interest, and income tax expense.

  • The format of an income statement is important.

  • Note that the heading must always

  • include the company name, the title

  • of the financial statement, and the time period covered.

  • Revenues are listed first.

  • If there are multiple revenues, you

  • must list each different type of revenue

  • individually and then show a subtotal called total revenues.

  • Expenses are listed next, with a total of all expenses.

  • There is a profit before income tax expense, then

  • income tax expense as a separate line item,

  • before listing a final profit amount.

  • Note that if expenses are greater than revenues,

  • a loss amount is provided at the bottom of the statement.

  • This is called a single step income statement.

  • We'll be covering a multiple step income

  • statement in a future video.

  • Remember to pause the video to determine

  • your answer to this check your understanding

  • question about the uses of the income statement.

  • Investors are interested in a company's past performance

  • because it helps them--

  • the answer is not A. Determining the amount of debt

  • a company currently has is answered

  • by reviewing the statement of financial position.

  • The answer is not B, as the current value of a company's

  • property, plant, and equipment is only

  • on the statement of financial position

  • if the company chooses to use fair value.

  • The answer is not D either.

  • Determining if a company is profitable enough

  • to repay its debt is what lenders will

  • use the income statement for.

  • The correct answer is C, as investors

  • are interested in determining the future profitability

  • of a company.

  • Why is this?

  • Because it will help investors determine

  • if they should keep or sell the shares they own in the company.

  • Investors also use the income statement

  • to determine if the company will be

  • in a position to pay dividends.

  • Lenders use the income statement to help them determine

  • if they can fund the company with loans

  • and if the company will be in a position to repay the loan

  • plus interest in the future.

  • Other creditors use this statement

  • to figure out if the company will be profitable enough

  • to repay their debts as they come due.

  • The long-term survival of any corporation

  • depends on its ability to produce revenues that are

  • greater than their expenses.

  • Profits allow a company to fund their financing activities

  • by paying dividends to shareholders and interest

  • to lenders.

  • It also allows a company to pay for investing activities,

  • like buying new equipment.

  • Investors buy and sell shares, and creditors loan money,

  • based on their beliefs about a company's future performance.

  • Income statements, which show past performance,

  • give users information to help predict future performance.

  • The income statement is a statement

  • that is connected to many other financial statements.

  • The profit or loss from the income statement

  • is the opening number for both the statement

  • of comprehensive income and the statement of cash flows,

  • under the indirect method.

  • In addition, profit is carried forward

  • to the statement of changes in equity,

  • under the retained earnings column.

  • Since the profit from the income statement

  • is used in other statements, it is always

  • the first financial statement completed.

  • The next statement produced is the statement

  • of comprehensive income, which we'll

  • be covering in the next video.

Hi.

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A2 US statement income income statement company financial profit

Financial Statements - Lecture 4 - Income Statement

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    陳虹如 posted on 2017/06/23
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