Subtitles section Play video Print subtitles Hi, my name is Jennifer Anderson and I'm going to present the four basic financial statements for Santiago Canyon College. After this short presentation, you should be able to describe the four basic financial statements required by Generally Accepted Accounting Principles, indicate the formulas for each, the order in which they prepared, and understand how they're all connected. Companies prepare four basic financial statements from summarized accounting data in accordance with GAAP. For this presentation, these financial statements have been simplified to show their interrelationship. We'll start with the income statement, the next will be the statement of retained earnings, the balance sheet and the fourth will be the statement of cash flows. The first statement that we're going to cover is the income statement. The income statement reports revenues and expenses for a period of time So here's a little example how that might look in a very simplified format. So we're going to show the revenue or sales that the company might have less any expenses and this company has net income which means the revenues exceeded the expenses for the period. If expenses exceed revenues the Company would have a net loss. So the formula you're looking for on the income statement is basically revenue minus expenses gets you to net income or net loss. The next statement will show the changes in retained earnings during the period. The time period you'll notice is the same as what we covered during the income statement. For this Company as a year ending 12 31 2015 and the formula will begin with the beginning retained earnings we'll add or subtract any net income or net loss from the income statement subtract the dividends getting us to an ending retained earnings, that we are going to use for the next statement, which is the Balance Sheet. This Balance Sheet you'll notice is one day only, so it's reporting assets and any claims to assets on a specific point in time. So, this is the last day of the year in this example and you can see that the formula is assets followed by liabilities and equity. And in order for this financial statement to balance, assets are always going to equal liabilities plus equity. Yes, you can see the 800 total assets equals the 800 total liabilities plus equity. and then the fourth statement, the Statement Cash Flows will tell the reader where the cash come from during the period, how is it used and what's the change in the cash balance during the period. So for this fourth statement the formula starts with beginning cash. Its going to add or subtract any cash provided or used from operations, investing or financing (and financing) and get to the ending cash number. That was also the same ending cash balance that you saw on the Balance Sheet So the last slide I am going to go over is really going to point out the inter-relationship between all four of those statements and point out why we prepare them in order that we did. Because we really need to have one number from the previous statement in order to complete the next statement. So the first financial statement was the income statement where we saw the net income during the period. That net income was then brought to the retained earnings statement where we reconciled the changes in the equity balance during the period. we got to an ending retained earnings number which we then needed in order to complete our Balance Sheet, which was solving a for that one day only. What are the assets, liabilities and equity that the company has and then are fourth statement, the Statement of Cash Flows reconciled the change in cash during the period. So you'll notice that the ending cash on the Balance Sheet is the number that were reconciling to. We're showing where the changes from the beginning cash to the ending cash and whether it came from operating, financing or investing during the period. I hope you enjoyed this short presentation and we're going to spend a lot more time learning how to prepare the statements and understanding the inter-relationship between them all. Again my name is Jennifer Anderson for Santiago Canyon College Thank you and have a great day!