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3.
1.2 Think about a recent purchase you made. Describe what financial and nonfinancial factors went into
that purchase. Rank the factors, and explain how you made the final decision to purchase the item.
4.
1.2 Computerized accounting systems help businesses effici... | {"total_pages": 1055, "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "title": "Principles of Accounting, Volume 1: Financial Accounting", "uploaded_via": "batch_uploader", "moddate": "2020-08-05T15:26:11-05:00", "upload_timestamp": "2026-02-07T07:23:08.167529", "file_name": "FinancialAcco... |
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predictions you can make about the future financial performance of Netflix. What nonfinancial factors
influenced that prediction?
This OpenStax book is available for free at http://cnx.org/content/col25448/... | {"moddate": "2020-08-05T15:26:11-05:00", "creationdate": "2019-04-24T10:32:54-05:00", "total_pages": 1055, "file_type": ".pdf", "file_size_mb": 156.7, "upload_timestamp": "2026-02-07T07:23:08.167529", "uploaded_via": "batch_uploader", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "title": "Pr... |
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1.3 Use the internet to research one for-profit, one governmental, and one not-for-profit entity. For each
entity, describe the following:
A.
B.
the primary purpose of the entity
the types of activities that accountants would record (hint: what is the source of the entity’s funding,
and what costs might the e... | {"total_pages": 1055, "file_type": ".pdf", "file_size_mb": 156.7, "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "title": "Principles of Accounting, Volume 1: Financial Accounting", "creator": "DocBook XSL Stylesheets V1.79.1", "source_file": "downloads\\business\\accounting\\Financial... |
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the types of decisions that might be made in this organization and how financial and nonfinancial
information might help the decision-making process
9.
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traditional “brick-and-mortar” store or to sell only online... | {"source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "creationdate": "2019-04-24T10:32:54-05:00", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "moddate": "2020-08-05T15:26:11-05:00", "title": "Principles of Accounting, Volume 1: Financial Accounting", "file_name": "... |
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A. why ride-sharing services have gained in popularity
B.
C.
the financial considerations relevant to your decision
the nonfinancial considerations relevant to your decision
11.
1.3 How would you categorize or classify a company like Disney?
12.
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1.4 Use the internet to visit the Securities and Exchange Commission (SEC) website
(https://www.sec.gov/). Write a report discussing the following:
A.
several of the services provided by the SEC
B. why the services are important to the investing public
C. why you think the SEC would require publicly traded co... | {"source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "creator": "DocBook XSL Stylesheets V1.79.1", "batch_upload": true, "title": "Principles of Accounting, Volume 1: Financial Accounting", "file_name": "FinancialAccounting-OP.pdf", "moddate": "2020-08-05T15:26:11-05:00", "total_pages": 1055, ... |
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B. Discuss the financial information that might be helpful in formulating the student senate position.
C. Discuss the nonfinancial information that might be helpful in formulating the student senate position.
15.
1.4 According to a company press release, on January 5, 2012, Hansen Natural Co... | {"uploaded_via": "batch_uploader", "file_size_mb": 156.7, "title": "Principles of Accounting, Volume 1: Financial Accounting", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "file_name": "FinancialAccounting-OP.pdf", "batch_upload": true, "file_type": ".pdf", "upload_timestamp": "2026-02-... |
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16.
1.4 The Dow Jones Industrial Average (DJIA) is often cited as a key metric for business activity. The
average is a mathematical formula that uses the stock prices of thirty companies traded on the New York Stock
Exchange (NYSE) and the National As... | {"file_name": "FinancialAccounting-OP.pdf", "moddate": "2020-08-05T15:26:11-05:00", "producer": "Prince 11 (www.princexml.com)", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "title": "Principles of Accounting, Volume 1: Financial Accounting", "file_hash": "89738e550d63820fbb3a833d14ab04... |
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and current values of the DJIA?
This OpenStax book is available for free at http://cnx.org/content/col25448/1.4
Chapter 1 Role of Accounting in Society
59
17.
1.5 Many professional certifications now have requi... | {"moddate": "2020-08-05T15:26:11-05:00", "file_size_mb": 156.7, "creator": "DocBook XSL Stylesheets V1.79.1", "creationdate": "2019-04-24T10:32:54-05:00", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "total_pages": 1055, "batch_upload": true, "file_hash": "89738e550d63820fbb3a833d14ab04... |
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0.00... | fairly consistent or drastically different from each other? A helpful resource is
https://www.thiswaytocpa.com/. You may also find it helpful to search the board of accountancy for
each state.
C. Tax preparation is a large part of what many CPAs do. Students may be interested to know that a CPA
(or any other licens... | {"file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "moddate": "2020-08-05T15:26:11-05:00", "uploaded_via": "batch_uploader", "title": "Principles of Accounting, Volume 1: Financial Accounting", "total_pages": 1055, "upload_timestamp": "2026-02-07T07:23:08.167529", "file_name": "FinancialA... |
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the following:
A.
Identify the name of the certification and the institute that administered the certification.
B. Explain the education and/or experience requirements for taking the exam and earning the licen... | {"total_pages": 1055, "file_type": ".pdf", "file_name": "FinancialAccounting-OP.pdf", "uploaded_via": "batch_uploader", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "file_size_mb": 156.7, "batch_upload": true, "moddate": "2020-08-05T15:26:11-05:00", "producer": "Prince 11 (www.princexml... |
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A. Evaluate these options, and identify the advantages and disadvantages of each.
B.
It may be helpful to do some research on earnings and advancement potential, available formats of
graduate programs (full time, part time, online), and other factors that might influence your decision.
You may want to rese... | {"upload_timestamp": "2026-02-07T07:23:08.167529", "creationdate": "2019-04-24T10:32:54-05:00", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "uploaded_via": "batch_uploader", "title": "Principles of Accounting, Volume 1: Financial Accounting", "batch_upload": true, "file_hash": "89738e550d63... |
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Chapter Outline
2.1 Describe the Income Statement, Statement of Owner’s Equity, Balance Sheet, and Statement of Cash
Flows, and How They Interrelate
2.2 Define, Explain, and Provide Examples of Current and Noncurrent Assets, ... | {"file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "total_pages": 1055, "moddate": "2020-08-05T15:26:11-05:00", "file_type": ".pdf", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "uploaded_via": "batch_uploader", "creationdate": "2019-04-24T10:32:54-05:00",... |
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through the use of technology. The director of the retirement center is enthused about Derek’s idea and has
agreed to pay him for the services. During his visits, he will set up tablets and then show the se... | {"uploaded_via": "batch_uploader", "title": "Principles of Accounting, Volume 1: Financial Accounting", "file_size_mb": 156.7, "batch_upload": true, "creator": "DocBook XSL Stylesheets V1.79.1", "total_pages": 1055, "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "source": "downloads\\b... |
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financial information, such as checking account and other financial statements. While he enjoys technology
62
Chapter 2 Introduction to Financial Statements
and helping others, he is unfamiliar with financial stat... | {"file_size_mb": 156.7, "creator": "DocBook XSL Stylesheets V1.79.1", "total_pages": 1055, "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "upload_timestamp": "2026-02-07T07:23:08.167529", "uploaded_via": "batch_uploader", "source_file": "downloads\\business\\accounting\\FinancialAccoun... |
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detail, there is an assortment of more advanced accounting courses available.
This chapter concentrates on the four major types of financial statements and their interactions, the major
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business should not be recorded in the organization’s records; this accounting principle is called the business
entity concept. Accountants should record only business transactions in business records.
This se... | {"file_size_mb": 156.7, "upload_timestamp": "2026-02-07T07:23:08.167529", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "title": "Principles of Accounting, Volume 1: Financial Accounting", "producer": "Prince 11 (www.princexml.com)", "creationdate": "2019-04-24T10:32:54-05:00", "moddate": "20... |
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of this type of structure include ease of formation, favorable tax treatment, and a high level of control over the
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This OpenStax book is available for free at http://cnx.org/content/col25448/1.4
Chapter 2 Introduction to Financial Statements
63
have limited liability. That is, a corporation is “stand alone,” conducti... | {"moddate": "2020-08-05T15:26:11-05:00", "file_type": ".pdf", "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "creationdate": "2019-04-24T10:32:54-05:00", "creator": "DocBook XSL Stylesheets V1.79.1", "file_name": "FinancialAccounting-OP.pdf", "batch_upload": true, "title": "Principles ... |
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-0.01035... | shareholders. A major disadvantage of a corporate legal structure is double taxation—the business pays
income tax and the owners are taxed when distributions (also called dividends) are received.
Types of Business Structures
Sole Proprietorship
Partnership
Corporation
Number of Owners
Single individual
Two or m... | {"batch_upload": true, "title": "Principles of Accounting, Volume 1: Financial Accounting", "creationdate": "2019-04-24T10:32:54-05:00", "uploaded_via": "batch_uploader", "creator": "DocBook XSL Stylesheets V1.79.1", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "file_type": ".pdf", "moddate"... |
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about to be revealed. Some people prefer knowing the end and skipping all of the details in the middle, while
others prefer to fully immerse themselves and then discover the outcome. People often do not know or... | {"creator": "DocBook XSL Stylesheets V1.79.1", "moddate": "2020-08-05T15:26:11-05:00", "creationdate": "2019-04-24T10:32:54-05:00", "file_name": "FinancialAccounting-OP.pdf", "upload_timestamp": "2026-02-07T07:23:08.167529", "producer": "Prince 11 (www.princexml.com)", "file_type": ".pdf", "file_size_mb": 156.7, "total... |
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considered to be in business to generate a profit. Each financial statement we examine has a unique function,
and together they provide information to determine whether a company generated a profit or loss for a g... | {"file_type": ".pdf", "file_name": "FinancialAccounting-OP.pdf", "creator": "DocBook XSL Stylesheets V1.79.1", "title": "Principles of Accounting, Volume 1: Financial Accounting", "creationdate": "2019-04-24T10:32:54-05:00", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "file_size_mb": 1... |
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Income Statement
2. Statement of Owner’s Equity
3. Balance Sheet
64
Chapter 2 Introduction to Financial Statements
4. Statement of Cash Flows.
The order of preparation is important as it relates to the concept of how financial statements are interrelated.
Before explaining each in detail, let’s explore the p... | {"source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "title": "Principles of Accounting, Volume 1: Financial Accounting", "total_pages": 1055, "creationdate": "2019-04-24T10:32:54-05:00", "file_type": ".pdf", "sou... |
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while working as a ski instructor in Colorado and wanted to bring that feeling back home to Arkansas.
And so, Gearhead was born in a small downtown location in Jonesboro. The company has had great
success over ... | {"file_size_mb": 156.7, "file_type": ".pdf", "batch_upload": true, "moddate": "2020-08-05T15:26:11-05:00", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "file_name": "FinancialAccounting-OP.pdf", "creationdate": "20... |
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lenders, analyzing whether profit and positive cash flow is sustainable to allow for expansion, and
managing inventory levels. Accounting, or the preparation of financial statements (balance sheet,
income statement, and s... | {"file_size_mb": 156.7, "creationdate": "2019-04-24T10:32:54-05:00", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "producer": "Prince 11 (www.princexml.com)", "title": "Principles of Accounting, Volume 1: Financial Accounting", "source": "downloads\\business\\accounting\\FinancialAccoun... |
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organization, including include investors, creditors, employees, managers, regulators, customers, and
suppliers. The stakeholder’s interest sometimes is not directly related to the entity’s financial performa... | {"creationdate": "2019-04-24T10:32:54-05:00", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "uploaded_via": "batch_uploader", "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "title": "Principles of Accounting, Volume 1: Financial Accounting", "file_name":... |
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Likewise, small business owners may make decisions based on their familiarity with the business—they know if
the business is doing well or not based on their “gut feeling.” By preparing the financial statements,
This OpenStax book is available for free at http://cnx.org/content/col25448/1.4
Chap... | {"title": "Principles of Accounting, Volume 1: Financial Accounting", "creator": "DocBook XSL Stylesheets V1.79.1", "creationdate": "2019-04-24T10:32:54-05:00", "total_pages": 1055, "batch_upload": true, "file_size_mb": 156.7, "upload_timestamp": "2026-02-07T07:23:08.167529", "uploaded_via": "batch_uploader", "producer... |
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company’s financial health. By evaluating all of the financial statements together, someone with financial
knowledge can determine the overall health of a company. The accountant can use this information to a... | {"creator": "DocBook XSL Stylesheets V1.79.1", "producer": "Prince 11 (www.princexml.com)", "moddate": "2020-08-05T15:26:11-05:00", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "file_size_mb": 156.7, "creationdate": "2019-04-24T10:32:54-05:00", "file_name": "FinancialAccounting-OP.pdf", "upl... |
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0.0338891... | greatest good for the greatest number of people. So, if we want to make an ethical decision, we should
ask ourselves who is helped and who is harmed by it. Focusing on consequences in this way generally
does not require us to take into account the means of achieving that particular end, however. Put simply,
the util... | {"file_name": "FinancialAccounting-OP.pdf", "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "uploaded_via": "batch_uploader", "moddate": "2020-08-05T15:26:11-05:00", "total_pages": 1055, "creationdate": "2019-04-24T10:32:54-05:00", "file_size_mb": 156.7, "producer": "Prince 11 (www.prin... |
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with the potential to produce the best outcomes for the majority of all stakeholders, not just
shareholders, and therefore maximize stakeholder happiness.
Accounting decisions can change the approach a stakeholder h... | {"source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "uploaded_via": "batch_uploader", "moddate": "2020-08-05T15:26:11-05:00", "producer": "Prince 11 (www.princexml.com)", "file_type": ".pdf", "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "file_name": "Financ... |
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Y O U R T U R N
Business Owners as Decision Makers
Think of a business owner in your family or community. Schedule some time to talk with the business
owner, and find out how he or she uses financial information to make dec... | {"file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "title": "Principles of Accounting, Volume 1: Financial Accounting", "file_size_mb": 156.7, "batch_upload": true, "creationdate": "2019-04-24T10:32:54-05:00", "creator": "DocBook XSL Stylesheets V1.79.1", "file_type": ".pdf", "source": "d... |
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The first financial statement prepared is the income statement, a statement that shows the organization’s
financial performance for a given period of time. Let’s illustrate the purpose of an income statement using a
real-life example. Assume your friend, Chris, who is a sole proprietor, started ... | {"uploaded_via": "batch_uploader", "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "upload_timestamp": "2026-02-07T07:23:08.167529", "file_size_mb": 156.7, "producer": "Prince 11 (www.princexml.com)", "moddate": "2020-08-05T15:26:11-05:00", "title": "Principles of Accounting, Volume 1: ... |
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customers. Chris decides to do some research to determine why the balance in the checking account is lower
than expected. Her research shows that she earned a total of $1,400 from her customers but had to pay $1... | {"uploaded_via": "batch_uploader", "batch_upload": true, "upload_timestamp": "2026-02-07T07:23:08.167529", "moddate": "2020-08-05T15:26:11-05:00", "creator": "DocBook XSL Stylesheets V1.79.1", "title": "Principles of Accounting, Volume 1: Financial Accounting", "source": "downloads\\business\\accounting\\FinancialAccou... |
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some new customers; she also anticipates having fewer expenses.
The Income Statement can also be visualized by the formula: Revenue – Expenses = Net Income/(Loss).
Let’s change this example slightly and assume ... | {"uploaded_via": "batch_uploader", "title": "Principles of Accounting, Volume 1: Financial Accounting", "moddate": "2020-08-05T15:26:11-05:00", "file_size_mb": 156.7, "creationdate": "2019-04-24T10:32:54-05:00", "upload_timestamp": "2026-02-07T07:23:08.167529", "total_pages": 1055, "file_type": ".pdf", "source_file": "... |
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and made, not necessarily the time period that they affect. At the end of this section and in The Adjustment
Process you will address accrual accounting, which does reflect the time period that they affect.
In accounting, this example illustrates an income statement, a financial statement that is used to measure ... | {"total_pages": 1055, "creationdate": "2019-04-24T10:32:54-05:00", "uploaded_via": "batch_uploader", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "creator": "DocBook XSL Stylesheets V1.79.1", "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "file_type": "... |
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-0.008... | greater than expenses and losses) or net loss (where expenses and losses are greater than revenues and
gains). Revenues, expenses, gains, and losses are further defined here.
Revenue
Revenue[1] is the value of goods and services the organization sold or provided to customers for a given
period of time. In our curren... | {"total_pages": 1055, "file_name": "FinancialAccounting-OP.pdf", "moddate": "2020-08-05T15:26:11-05:00", "file_size_mb": 156.7, "creationdate": "2019-04-24T10:32:54-05:00", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "batch_upload": true, "source": "downloads\\business\\accounting\\Fin... |
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0.03311191... | are often also called sales or fees earned. Just as earning wages from a business or summer job reflects the
number of hours worked for a given rate of pay or payments from clients for services rendered, revenues (and
the other terms) are used to indicate the dollar value of goods and services provided to customers f... | {"title": "Principles of Accounting, Volume 1: Financial Accounting", "batch_upload": true, "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "moddate": "2020-08-05T15:26:11-05:00", "creator": "DocBook XSL Stylesheets V1.79.1", "file_name": "FinancialAccounting-OP.pdf", "upload_timestamp"... |
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Many coffee shops earn revenue through multiple revenue streams, including coffee and other specialty
drinks, food items, gift cards, and merchandise.
Expenses
An expense[2] is a cost associated with providing goods or services to customers. In our opening example, the
expenses that Chris incurred totaled ... | {"file_size_mb": 156.7, "title": "Principles of Accounting, Volume 1: Financial Accounting", "producer": "Prince 11 (www.princexml.com)", "total_pages": 1055, "upload_timestamp": "2026-02-07T07:23:08.167529", "file_name": "FinancialAccounting-OP.pdf", "creationdate": "2019-04-24T10:32:54-05:00", "moddate": "2020-08-05T... |
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Board (or FASB), a professional body that issues guidelines/pronouncements for the accounting profession. A set of theoretical
pronouncements issued by FASB is called Statement of Financial Accounting Concepts (SFAC). In SFAC No. 6, FASB defines revenues as “inflows
or other enhancements of assets of an entity or se... | {"file_type": ".pdf", "upload_timestamp": "2026-02-07T07:23:08.167529", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "moddate": "2020-08-05T15:26:11-05:00", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "creationdate": "2019-04-24T10:32:54-05:00", "file_size_m... |
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68
Chapter 2 Introduction to Financial Statements
insurance). You might think of expenses as the opposite of revenue in that expenses reduce Chris’s checking
account balance. L... | {"file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "file_type": ".pdf", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "moddate": "2020-08-05T15:26:11-05:00", "uploaded_via": "batch_uploader", "total_pages": 1055, "creator": "DocBook XSL Stylesheets V1.79.1", "ba... |
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0.009269644506275654,
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0.02919033356010914,
-0.0326098... | forget about any expenses that might not be so obvious—as a general rule, every activity in a business
has an associated cost.
Solution
Costs of the coffee shop that might be readily observed would include rent; wages for the employees;
and the cost of the coffee, pastries, and other items/merchandise that may be s... | {"creator": "DocBook XSL Stylesheets V1.79.1", "creationdate": "2019-04-24T10:32:54-05:00", "uploaded_via": "batch_uploader", "producer": "Prince 11 (www.princexml.com)", "moddate": "2020-08-05T15:26:11-05:00", "file_size_mb": 156.7, "file_name": "FinancialAccounting-OP.pdf", "file_type": ".pdf", "batch_upload": true, ... |
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-0.02... | to our example. However, this example and the accompanying losses example are not going to be part of our
income statement, balance sheet, or owner’s equity statement discussions. The gains and losses examples are
only to be used in demonstrating the concepts of gains and losses. Assume that Chris paid $1,500 for a s... | {"title": "Principles of Accounting, Volume 1: Financial Accounting", "producer": "Prince 11 (www.princexml.com)", "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "upload_timestamp": "2026-02-07T07:23:08.167529", "uploaded_via": "batch_uploader", "source": "downloads\\business\\accounti... |
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0.03433661907911301,
-0.005517458543181419,
-0.027944687753915787,
0.0349990613758564,
0.0322... | question: how are gains similar to and different from revenues? The revenue of $1,400 that Chris earned from
her business and the $2,000 she received from selling the land are similar in that both increase her checking
account balance and make her business more valuable.
A difference, however, is evident if we consi... | {"total_pages": 1055, "uploaded_via": "batch_uploader", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "title": "Principles of Accounting, Volume 1: Financial Accounting", "moddate": "2020-08-05T15:26:11-05:00", "upload_timestamp": "2026-02-07T07:23:08.167529", "file_hash": "89738e550d63820fbb... |
1b45478d-684b-4d41-a51d-df3ca12239fe | [
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0.029468072578310966,
0.029256252571940422,
0.021473798900842667,
-0.0455... | FASB notes that gains represent an increase in organizational value from activities that are “incidental or peripheral” (SFAC No. 6, p. 24) to
3
the primary purpose of the business.
This OpenStax book is available for free at http://cnx.org/content/col25448/1.4
Chapter 2 Introduction to Financial Statements
69
fac... | {"batch_upload": true, "creator": "DocBook XSL Stylesheets V1.79.1", "upload_timestamp": "2026-02-07T07:23:08.167529", "moddate": "2020-08-05T15:26:11-05:00", "uploaded_via": "batch_uploader", "file_type": ".pdf", "total_pages": 1055, "file_size_mb": 156.7, "source_file": "downloads\\business\\accounting\\FinancialAcco... |
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-0.0609... | in business, these transactions are classified as gains, because these sales are infrequent and not the primary
purpose of the business.
Losses
A loss[4] results from selling ancillary business items for less than the items are worth. To illustrate, let’s now
assume that Chris sells her land that she purchased for $... | {"file_size_mb": 156.7, "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "file_name": "FinancialAccounting-OP.pdf", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "upload_timestamp": "2026-02-07T07:23:08.167529", "file_hash": "89738e550d63820fbb3a833d14ab04029664bc... |
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-0.023391859... | and use for future expenses. The $300 loss simply indicates that she received less for the land than she paid
for it. These are two aspects of the same transaction that communicate different things, and it is important to
understand the differences.
As we saw when comparing gains and revenues, losses are similar to ... | {"batch_upload": true, "moddate": "2020-08-05T15:26:11-05:00", "creator": "DocBook XSL Stylesheets V1.79.1", "file_type": ".pdf", "file_size_mb": 156.7, "uploaded_via": "batch_uploader", "upload_timestamp": "2026-02-07T07:23:08.167529", "creationdate": "2019-04-24T10:32:54-05:00", "source": "downloads\\business\\accoun... |
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-0.01... | revenues (inflows). In accounting it is common to present net income in the following format:
Recall that revenue is the value of goods and services a business provides to its customers and increase the
value of the business. Expenses, on the other hand, are the costs of providing the goods and services and
decrease... | {"creationdate": "2019-04-24T10:32:54-05:00", "producer": "Prince 11 (www.princexml.com)", "total_pages": 1055, "upload_timestamp": "2026-02-07T07:23:08.167529", "file_type": ".pdf", "uploaded_via": "batch_uploader", "title": "Principles of Accounting, Volume 1: Financial Accounting", "file_hash": "89738e550d63820fbb3a... |
4cd4f2da-374c-4b5c-942f-cb2e6028a1a6 | [
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-0.0484... | time-to-time. It is difficult, however, for businesses to remain viable while experiencing net losses over the
long term.
Shown as a formula, the net income (loss) function is:
FASB notes losses represent a decrease in organizational value from activities that are “incidental or peripheral” (SFAC No. 6, p. 24) to th... | {"uploaded_via": "batch_uploader", "title": "Principles of Accounting, Volume 1: Financial Accounting", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "creator": "DocBook XSL Stylesheets V1.79.1", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "file_type": ".pdf"... |
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0.036267660558223724,
-0.00... | Shown as a formula, the net income (loss) function, including gains and losses, is:
When assessing a company’s net income, it is important to understand the source of the net income.
Businesses strive to attain “high-quality” net income (earnings). High-quality earnings are based on
sustainable earnings—also called ... | {"title": "Principles of Accounting, Volume 1: Financial Accounting", "batch_upload": true, "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "moddate": "2020-08-05T15:26:11-05:00", "uploaded_via": "batch_uploader", "upload_timestamp": "2026-02-07T07:23:08.167529", "source": "downloads\\b... |
569d7733-a6ca-4238-9a1f-7b4f4184f906 | [
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-0.0575... | perspective due to the infrequent nature of losses. While net losses are undesirable for any reason, net losses
that result from expenses related to ongoing operations, rather than losses that are infrequent, are more
concerning for the business.
Statement of Owner’s Equity
Equity is a term that is often confusing ... | {"file_name": "FinancialAccounting-OP.pdf", "batch_upload": true, "total_pages": 1055, "uploaded_via": "batch_uploader", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "title": "Principles of Accounting, Volume 1: Financial Accounting", "file_size_mb": 156.7, "source": "downloads\\busines... |
6b8bc669-0cbc-4ae1-839d-bb1d1c972b85 | [
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0.01172203104943037,
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-0.1005... | equity in the home? If you answered $25,000, you are correct. At the time of the purchase, the family owns a
home worth $200,000 (an asset), but they owe $175,000 (a liability), so the equity or net worth in the home is
$25,000.
The statement of owner’s equity, which is the second financial statement created by acco... | {"file_size_mb": 156.7, "moddate": "2020-08-05T15:26:11-05:00", "file_type": ".pdf", "total_pages": 1055, "upload_timestamp": "2026-02-07T07:23:08.167529", "creator": "DocBook XSL Stylesheets V1.79.1", "title": "Principles of Accounting, Volume 1: Financial Accounting", "creationdate": "2019-04-24T10:32:54-05:00", "bat... |
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0.004214... | 71
statement that shows how the net worth, or value, of the business has changed for a given period of time.
The elements of the financial statements shown on the statement of owner’s equity include investments by
owners as well as distributions to owners. Investments by owners and distributions to owners are two ac... | {"uploaded_via": "batch_uploader", "producer": "Prince 11 (www.princexml.com)", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "file_name": "FinancialAccounting-OP.pdf", "upload_timestamp": "2026-02-07T07:23:08.167529", "creationdate": "2019-04-24T10:32:54-05:00", "batch_upload": true, "title"... |
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-0.0480531... | (plural, for a group of owners) when preparing this statement for an entity with multiple owners versus a sole
proprietorship.
In our example, to make it less complicated, we started with the first month of operations for Chris’s
Landscaping. In the first month of operations, the owner’s equity total begins the mont... | {"source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "producer": "Prince 11 (www.princexml.com)", "upload_timestamp": "2026-02-07T07:23:08.167529", "title": "Principles of Accounting, Volume 1: Financial Accounting", "file_name": "FinancialAccounting-OP.pdf", "file_size_mb": 156.7, "creator": "DocB... |
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-0.018532948568463326,
-0.002979231532663107,
0.010382919572293758,
-0.01460945699363947,... | examples. We have addressed the owner’s value in the firm as capital or owner’s equity. However, later we
switch the structure of the business to a corporation, and instead of owner’s equity we begin using
stockholder’s equity, which includes account titles such as common stock and retained earnings to represent the
... | {"uploaded_via": "batch_uploader", "upload_timestamp": "2026-02-07T07:23:08.167529", "creationdate": "2019-04-24T10:32:54-05:00", "moddate": "2020-08-05T15:26:11-05:00", "title": "Principles of Accounting, Volume 1: Financial Accounting", "file_size_mb": 156.7, "batch_upload": true, "source_file": "downloads\\business\... |
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0.0... | revenues exceed expenses) and investments by owners. Organizations often have long-term goals or projects
that are very expensive (for example, building a new manufacturing facility or purchasing another company).
While having profitable operations is a viable way to “fund” these goals and projects, organizations oft... | {"upload_timestamp": "2026-02-07T07:23:08.167529", "title": "Principles of Accounting, Volume 1: Financial Accounting", "creationdate": "2019-04-24T10:32:54-05:00", "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "creator": "DocBook XSL Stylesheets V1.79.1", "source": "downloads\\busine... |
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72
Chapter 2 Introduction to Financial Statements
When organizations generate funding by selling ownership, the ownership interest usually takes the form of
common stock, which is the corporation’s primary class of stock issued, with each share representing a partial
claim to ownership or a share of ... | {"batch_upload": true, "upload_timestamp": "2026-02-07T07:23:08.167529", "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "creator": "DocBook XSL Stylesheets V1.79.1", "file_name": "FinancialAccounting-OP.pdf", "sou... |
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-0.0540... | become owners of the particular company. Companies that issue publicly traded common shares in the United
States are regulated by the Securities and Exchange Commission (SEC), a federal regulatory agency that,
among other responsibilities, is charged with oversight of financial investments such as common stock.
C O ... | {"source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "creationdate": "2019-04-24T10:32:54-05:00", "moddate": "2020-08-05T15:26:11-05:00", "file_size_mb": 156.7, "file_name": "FinancialAccounting-OP.pdf", "producer": "Prince 11 (www.princexml.com)", "source_file": "downloads\\business\\accounting\\F... |
b1060cbe-1f8f-43b0-8bc2-66c447ab1035 | [
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0.12503215670585632,
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-0.0681... | information about the company. The information from Roku also included the purpose of the offering as
well as the intended uses of the funds. Here is a portion of the disclosure: “The principal purposes of this
offering are to increase our capitalization and financial flexibility and create a public market for our Cl... | {"upload_timestamp": "2026-02-07T07:23:08.167529", "title": "Principles of Accounting, Volume 1: Financial Accounting", "total_pages": 1055, "file_name": "FinancialAccounting-OP.pdf", "uploaded_via": "batch_uploader", "file_type": ".pdf", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "moddate... |
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-0.0085... | Distributions to Owners
There are basically two ways in which organizations become less valuable in terms of owners’ equity: from
unprofitable operations (when expenses or losses exceed revenues or gains) and by distributions to owners.
Owners (investors) of an organization want to see their investment appreciate (g... | {"source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "uploaded_via": "batch_uploader", "batch_upload": true, "creationdate": "2019-04-24T10:32:54-05:00", "title": "Principles of Accounting, Volume 1: Financial Accounting", "file_size_mb": 156.7, "source_file": "downloads\\business\\accounting\\Fina... |
a724a641-bf17-4322-a408-30f4663734d9 | [
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0.041721... | Roku, Inc. “Form S-1 Filing with the Securities and Exchange Commission.” September 1, 2017. https://www.sec.gov/Archives/edgar/data/
5
1428439/000119312517275689/d403225ds1.htm
6
1428439/000119312517275689/d403225ds1.htm
7
Roku, Inc. Data. https://finance.yahoo.com/quote/ROKU/history?p=ROKU
This OpenStax book is av... | {"source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "total_pages": 1055, "uploaded_via": "batch_uploader", "producer": "Prince 11 (www.princexml.com)", "moddate": "2020-08-05T15:26:11-05:00", "file_size_mb": 156.7, "creationdate": "2019-04-24T10:32:54-05:00", "file_name": "FinancialAccounting... |
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-0.0... | organization’s assets, some argue that paying dividends increases the organization’s long-term value by
making the stock more desirable. (Note that this topic falls under the category of “dividend policy” and there
is a significant stream of research addressing this.)
Balance Sheet
Once the statement of owner’s equ... | {"upload_timestamp": "2026-02-07T07:23:08.167529", "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "batch_upload": true, "total_pages": 1055, "producer": "Prince 11 (www.princexml.com)", "file_size_mb": 156.7, "creationdate": "2019-04-24T10:32:54-05:00", "uploaded_via": "batch_uploader"... |
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-0.03557... | lists the financial position at the close of business on a specific date. (Refer to Figure 2.2 for the balance sheet
as of August 31, 2020, for Chris’ Landscaping.)
Figure 2.2
“Balance Sheet for Chris’ Landscaping.” (attribution: Copyright, Rice University, OpenStax, under
CC BY-NC-SA 4.0 license)
Assets
If you r... | {"file_name": "FinancialAccounting-OP.pdf", "title": "Principles of Accounting, Volume 1: Financial Accounting", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "file_type": ".pdf", "uploaded_via": "batch_uploader", "moddate": "2020-08-05T15:26:11-05:00", "creator": "DocBook XSL Stylesheets V1.... |
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-0.02566... | can be categorized as a short-term asset or current asset (which is typically used up, sold, or converted to
cash in one year or less) or as a long-term asset or noncurrent asset (which is not expected to be converted
into cash or used up within one year). Long-term assets are often used in the production of products... | {"uploaded_via": "batch_uploader", "total_pages": 1055, "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "batch_upload": true, "upload_timestamp": "2026-02-07T07:23:08.167529", "creationdate": "2019-04-24T10:32:54-05:00", "file_type": ".pdf", "producer": "Prince 11 (www.princexml.com)", "cr... |
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or events” (SFAC No. 6, p. 12).
74
Chapter 2 Introduction to Financial Statements
assets. Examples include Merchandising Transactions, which are typically short term, and Long-Term Assets,
which are typically long term.
An asset can also be categorized as a tangible asset or an intangible asset. Tangible assets ... | {"source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "file_size_mb": 156.7, "creationdate": "2019-04-24T10:32:54-05:00", "total_pages": 1055, "moddate": "2020-08-05T15:26:11-05:00", "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "file_name": "FinancialAccounti... |
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-0.0... | expected to be paid within one year or less, while long-term liabilities are typically expected to be due for
payment more than one year past the current balance sheet date.
Common short-term liabilities or amounts owed by businesses include amounts owed for items purchased on
credit (also called accounts payable), ... | {"creationdate": "2019-04-24T10:32:54-05:00", "total_pages": 1055, "upload_timestamp": "2026-02-07T07:23:08.167529", "moddate": "2020-08-05T15:26:11-05:00", "file_name": "FinancialAccounting-OP.pdf", "creator": "DocBook XSL Stylesheets V1.79.1", "uploaded_via": "batch_uploader", "file_hash": "89738e550d63820fbb3a833d14... |
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-... | company at the end of the first month (see Figure 2.2).
At any point in time it is important for stakeholders to know the financial position of a business. Stated
differently, it is important for employees, managers, and other interested parties to understand what a
business owns, owes, and is worth at any given poi... | {"source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "creationdate": "2019-04-24T10:32:54-05:00", "producer": "Prince 11 (www.princexml.com)", "file_name": "FinancialAccounting-OP.pdf", "batch_upload": true, "file_size_mb": 156.7, "creator": "DocBook XSL Stylesheets V1.79.1", "moddate": "2020-08-05... |
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-0.05192... | business for a period of time. In addition, the statement of owner’s equity and the balance sheet help to show
the other activities, such as investments by and distributions to owners that are not included in the income
statement. To understand why the statement of cash flows is necessary, we must first understand th... | {"file_type": ".pdf", "uploaded_via": "batch_uploader", "file_name": "FinancialAccounting-OP.pdf", "file_size_mb": 156.7, "moddate": "2020-08-05T15:26:11-05:00", "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "title": "Principles of Accounting, Volume 1: Financial Accounting", "batch_u... |
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-0.01... | accounting are the cash basis and the accrual basis, briefly introduced in Describe the Income Statement,
Statement of Owner’s Equity, Balance Sheet, and Statement of Cash Flows, and How They Interrelate.
The FASB defines liabilities as “probable future sacrifices of economic benefits arising from present obligations... | {"source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "batch_upload": true, "file_size_mb": 156.7, "creationdate": "2019-04-24T10:32:54-05:00", "producer": "Prince 11 (www.princexml.com)", "file_type": ".pdf", "upload_timestamp": "2026-02-07T07:23:08.167529", "moddate": "2020-08-05T15:26:11-05:... |
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0.0650... | small businesses that elect to use this type of accounting. Under accrual basis accounting, transactions are
generally recorded in the financial statement when the transactions occur, and not when paid, although in
some situations the two events could happen on the same day.
An example of the two methods (cash versu... | {"file_size_mb": 156.7, "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "creationdate": "2019-04-24T10:32:54-05:00", "producer": "Prince 11 (www.princexml.com)", "file_type": ".pdf", "batch_upload": true, "moddate": "2020-08-05T15:26:11-05:00", "upload_timestamp": "2026-02-07T07:23:08.1675... |
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0.00... | 29, the day the work was completed. The accrual method will be the basis for your studies here (except for our
coverage of the cash flow statement in Statement of Cash Flows). The accrual method is also discussed in
greater detail in Explain the Steps within the Accounting Cycle through the Unadjusted Trial Balance.
... | {"file_name": "FinancialAccounting-OP.pdf", "moddate": "2020-08-05T15:26:11-05:00", "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "creationdate": "2019-04-24T10:32:54-05:00", "upload_timestamp": "2026-02-07T07:23:08.167529", "source_file": "downloads\\business\\accounting\\FinancialAc... |
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-0.04... | initial transaction). This allows accountants to provide, in a timely manner, relevant and complete information
to stakeholders. The Adjustment Process explores several common techniques involved in accrual accounting.
Two brief examples may help illustrate the difference between cash accounting and accrual accountin... | {"source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "moddate": "2020-08-05T15:26:11-05:00", "uploaded_via": "batch_uploader", "creator": "DocBook XSL Stylesheets V1.79.1", "total_pages": 1055, "creationdate": "2019-04... |
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0.01... | accounting. It makes sense because the customer received the merchandise and paid the business at the
same time. It is considered two events that occur simultaneously (exchange of merchandise for cash).
Similar to the previous example for the mechanic, a credit sale, however, would be treated differently under
each ... | {"moddate": "2020-08-05T15:26:11-05:00", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "creationdate": "2019-04-24T10:32:54-05:00", "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "file_type": ".pdf", "file_name": "FinancialAccounting-OP.pdf", "title": "P... |
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-0.013... | would be recorded in the financial statements at the time the services were provided, April 1. The reason the
sale would be recorded is, under accrual accounting, the business reports that it provided $500 worth of
services to its customer. The fact the customers will pay later is viewed as a separate transaction und... | {"uploaded_via": "batch_uploader", "file_name": "FinancialAccounting-OP.pdf", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "file_size_mb": 156.7, "total_pages": 1055, "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "moddate": "2020-08-05T15:26:11-05:00",... |
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-0.010... | Assume a business purchases $160 worth of printing supplies from a supplier (vendor). Similar to a sale, a
purchase of merchandise can be paid for at the time of sale using cash (also a check or credit card) or at a later
date (on account). A purchase paid with cash at the time of the sale would be recorded in the fi... | {"creationdate": "2019-04-24T10:32:54-05:00", "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "producer": "Prince 11 (www.princexml.com)", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "creator": "DocBook XSL Stylesheets V1.79.1", "uploaded_via": "batch_u... |
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the seller’s terms. For example, if the printing supplies were received on July 17 and the payment terms were
fifteen days, no transaction would be recorded until August 1, when the goods were paid for. Unde... | {"file_type": ".pdf", "file_name": "FinancialAccounting-OP.pdf", "file_size_mb": 156.7, "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "creator": "DocBook XSL Stylesheets V1.79.1", "moddate": "2020-08-05T15:26:11-05:00", "source": "downloads\\business\\accounting\\FinancialAccounting-O... |
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Transaction
Under Cash Basis Accounting
Under Accrual Basis Accounting
$200 sale for cash
Recorded in financial statements at time
Recorded in financial statements at
of sale
time of sale
$200 sale on
Not recorded in financial statements until
Rec... | {"total_pages": 1055, "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "moddate": "2020-08-05T15:26:11-05:00", "creationdate": "2019-04-24T10:32:54-05:00", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "file_type": ".pdf", "source_file": "downloads\\business\\a... |
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-0... | transactions would not be recorded until the cash is exchanged. In contrast, under accrual accounting the
transactions are recorded when the transaction occurs, regardless of when the cash is received or paid.
This OpenStax book is available for free at http://cnx.org/content/col25448/1.4
Chapter 2 Introduction to F... | {"producer": "Prince 11 (www.princexml.com)", "uploaded_via": "batch_uploader", "batch_upload": true, "file_name": "FinancialAccounting-OP.pdf", "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "creationdate": "2019-04-24T10:32:54-05:00", "file_type": ".pdf", "source": "downloads\\busine... |
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-0.032... | (also called vendors) for cash or, more likely, on account. Under the cash basis of accounting, these
transactions would not be recorded until the cash is exchanged. In contrast, under accrual accounting the
transactions are recorded when the transaction occurs, regardless of when the cash is received or paid.
Knowi... | {"total_pages": 1055, "moddate": "2020-08-05T15:26:11-05:00", "upload_timestamp": "2026-02-07T07:23:08.167529", "file_name": "FinancialAccounting-OP.pdf", "batch_upload": true, "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "creator": "DocBook XSL Stylesheets V1.79.1", "producer": "Pri... |
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activities. The statement of cash flows solves this inadequacy by specifically focusing on the cash inflows and
cash outflows.
2.2 Define, Explain, and Provide Examples of Current and Noncurrent Assets,
Current an... | {"total_pages": 1055, "title": "Principles of Accounting, Volume 1: Financial Accounting", "file_size_mb": 156.7, "batch_upload": true, "creator": "DocBook XSL Stylesheets V1.79.1", "creationdate": "2019-04-24T10:32:54-05:00", "upload_timestamp": "2026-02-07T07:23:08.167529", "source_file": "downloads\\business\\accoun... |
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0.0193718... | Did you happen to notice many of the items on your list have one thing in common: the items will be used
over a long period of time? In accounting, we classify assets based on whether or not the asset will be used or
consumed within a certain period of time, generally one year. If the asset will be used or consumed i... | {"source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "title": "Principles of Accounting, Volume 1: Financial Accounting", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "creationdate": "2019-04-24T10:32:54-05:00", "total_pages": 1055, "batch_upload": true, "file_hash"... |
51812dab-7a5b-428e-a450-5ecdcfbf100e | [
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0.... | Cash Flows, and How They Interrelate, not all assets are tangible. An asset could be an intangible asset,
meaning the item lacks physical substance—it cannot be touched or moved. Take a moment to think about
your favorite type of shoe or a popular type of farm tractor. Would you be able to recognize the maker of that... | {"title": "Principles of Accounting, Volume 1: Financial Accounting", "batch_upload": true, "producer": "Prince 11 (www.princexml.com)", "upload_timestamp": "2026-02-07T07:23:08.167529", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "file_name": "FinancialAccounting-OP.pdf", "file_type": ".pd... |
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-0.... | expected to be settled. A liability that will be settled in one year or less (generally) is classified as a current
liability, while a liability that is expected to be settled in more than one year is classified as a noncurrent
liability.
Examples of current assets include accounts receivable, which is the outstandi... | {"batch_upload": true, "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "title": "Principles of Accounting, Volume 1: Financial Accounting", "producer": "Prince 11 (www.princexml.com)", "creationdate": "2019-04-24T10:32:54-05:00", "file_type": ".pdf", "total_pages": 1055, "uploaded_via":... |
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-0.00112393... | that will be paid for at a later date, and notes payable, which is the value of amounts borrowed (usually not
inventory purchases) that will be paid in the future with interest.
Examples of noncurrent assets include notes receivable (notice notes receivable can be either current or
noncurrent), land, buildings, equi... | {"creator": "DocBook XSL Stylesheets V1.79.1", "moddate": "2020-08-05T15:26:11-05:00", "batch_upload": true, "uploaded_via": "batch_uploader", "upload_timestamp": "2026-02-07T07:23:08.167529", "file_type": ".pdf", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "total_pages": 1055, "file_s... |
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0.0... | amounts owed by the organization; listing those amounts in the financial statements provides valuable
information to stakeholders. But we have to dig a little deeper and remind ourselves that stakeholders are
using this information to make decisions. Providing the amounts of the assets and liabilities answers the
“w... | {"creationdate": "2019-04-24T10:32:54-05:00", "total_pages": 1055, "file_size_mb": 156.7, "file_type": ".pdf", "producer": "Prince 11 (www.princexml.com)", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "file_name": "FinancialAccounting-OP.pdf", "file_hash": "89738e550d63820fbb3a833d14ab040296... |
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0.00... | valuable. In short, the timing of events is of particular interest to stakeholders.
T H I N K I T T H R O U G H
Borrowing
When money is borrowed by an individual or family from a bank or other lending institution, the loan is
considered a personal or consumer loan. Typically, payments on these types of loans be... | {"source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "producer": "Prince 11 (www.princexml.com)", "batch_upload": true, "title": "Principles of Accounting, Volume 1: Financial Accounting", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "moddate": "2020-08-05T15:26:11-... |
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-0.0... | person gets the flu, misses a week of work at his campus job, and does not get paid for the absence.
Which loan would the person be most concerned about paying? Why?
This OpenStax book is available for free at http://cnx.org/content/col25448/1.4
Chapter 2 Introduction to Financial Statements
79
Equity and Legal St... | {"uploaded_via": "batch_uploader", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "creator": "DocBook XSL Stylesheets V1.79.1", "upload_timestamp": "2026-02-07T07:23:08.167529", "title": "Principles of Accounting, Vo... |
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0.... | “drawing” transactions for sole proprietorships and partnerships but are considered “dividend” transactions
for corporations.
As another example, in sole proprietorships and partnerships, the final amount of net income or net loss for
the business becomes “Owner(s), Capital.” In a corporation, net income or net loss... | {"source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "uploaded_via": "batch_uploader", "file_name": "FinancialAccounting-OP.pdf", "creator": "DocBook XSL Stylesheets V1.79.1", "title": "Principles of Accounting, Volume 1: Financial Accounting", "file_hash": "89738e550d63820fbb3a833d14ab0402966... |
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-0.0369... | (net loss). Because accountants are providing information to stakeholders, it is important for accountants to
fully understand the specific terminology associated with the various legal structures of organizations.
The Accounting Equation
Recall the simple example of a home loan discussed in Describe the Income Stat... | {"upload_timestamp": "2026-02-07T07:23:08.167529", "file_type": ".pdf", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "total_pages": 1055, "creator": "DocBook XSL Stylesheets V1.79.1", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "uploaded_via": "batch_uploade... |
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0.00680... | In our example, the accounting equation would look like this:
$200,000 = $175,000 + $25,000
As you continue your accounting studies and you consider the different major types of business entities
available (sole proprietorships, partnerships, and corporations), there is another important concept for you to
remember... | {"producer": "Prince 11 (www.princexml.com)", "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "title": "Principles of Accounting, Volume 1: Financial Accounting", "batch_upload": true, "uploaded_via": "batch_uploader", "file_name": "FinancialAccounting-OP.pdf", "file_type": ".pdf", "file_h... |
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-0.0170... | by owners. Stated differently, every asset has a claim against it—by creditors and/or owners.
80
Chapter 2 Introduction to Financial Statements
Y O U R T U R N
The Accounting Equation
On a sheet of paper, use three columns to create your own accounting equation. In the first column, list
all of the things you o... | {"file_name": "FinancialAccounting-OP.pdf", "uploaded_via": "batch_uploader", "upload_timestamp": "2026-02-07T07:23:08.167529", "total_pages": 1055, "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "file_size_mb": 156.7, "file_type": ".pdf", "source_file": "downloads\\business\\accounting\\Finan... |
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-0.065572... | the loan. But is that, in fact, the case? You might ask yourself why make an investment in a college
education—what is the benefit (asset) to going to college? The answer lies in the difference in lifetime
earnings with a college degree versus without a college degree. This is influenced by many things,
including th... | {"file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "moddate": "2020-08-05T15:26:11-05:00", "total_pages": 1055, "uploaded_via": "batch_uploader", "file_size_mb": 156.7, "producer": "Prince 11 (www.princexml.com)", "creationdate": "2019-04-24T10:32:54-05:00", "file_type": ".pdf", "file_nam... |
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wage differential between earnings with and without a college degree.
Expanding the Accounting Equation
Let’s continue our exploration of the accounting equation, focusing on the equity component, in particular... | {"creator": "DocBook XSL Stylesheets V1.79.1", "producer": "Prince 11 (www.princexml.com)", "uploaded_via": "batch_uploader", "upload_timestamp": "2026-02-07T07:23:08.167529", "creationdate": "2019-04-24T10:32:54-05:00", "file_name": "FinancialAccounting-OP.pdf", "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14d... |
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0.0332308... | each dollar of expenses an organization incurs decreases the overall value of the organization. The same
approach can be taken with the other elements of the financial statements:
• Gains increase the value (equity) of the organization.
• Losses decrease the value (equity) of the organization.
•
Investments by own... | {"file_type": ".pdf", "creator": "DocBook XSL Stylesheets V1.79.1", "upload_timestamp": "2026-02-07T07:23:08.167529", "file_name": "FinancialAccounting-OP.pdf", "file_size_mb": 156.7, "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "moddate": "2020-08-05T15:26:11-05:00", "batch_upload":... |
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0.006... | 81
Figure 2.4 Graphical Representation of the Accounting Equation. Both assets and liabilities are categorized
as current and noncurrent. Also highlighted are the various activities that affect the equity (or net worth) of
the business. (attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license... | {"batch_upload": true, "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "file_name": "FinancialAccounting-OP.pdf", "title": "Principles of Accounting, Volume 1: Financial Accounting", "upload_timestamp": "2026-02-07T07:23:08.167529", "producer": "Prince 11 (www.princexml.com)", "source":... |
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-0.... | Not All Transactions Affect Equity
As you continue to develop your understanding of accounting, you will encounter many types of transactions
involving different elements of the financial statements. The previous examples highlighted elements that
change the equity of an organization. Not all transactions, however, ... | {"file_size_mb": 156.7, "creationdate": "2019-04-24T10:32:54-05:00", "uploaded_via": "batch_uploader", "file_name": "FinancialAccounting-OP.pdf", "title": "Principles of Accounting, Volume 1: Financial Accounting", "moddate": "2020-08-05T15:26:11-05:00", "file_type": ".pdf", "producer": "Prince 11 (www.princexml.com)",... |
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2.3 Prepare an Income Statement, Statement of Owner’s Equity, and Balance
Sheet
One of the key factors for success for those beginning the study of accounting is to understand how the
elements of the financial statements relate to each of the financial statements. That is, once t... | {"creator": "DocBook XSL Stylesheets V1.79.1", "producer": "Prince 11 (www.princexml.com)", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "creationdate": "2019-04-24T10:32:54-05:00", "title": "Principles of Accounting, Volume 1: Financial Accounting", "source_file": "downloads\\business\\acco... |
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-0.... | baking analogy: the elements represent the ingredients, and the financial statements represent the finished
product. As with baking a cake (see Figure 2.5), knowing the ingredients (elements) and how each ingredient
relates to the final product (financial statements) is vital to the study of accounting.
Figure 2.5
... | {"batch_upload": true, "creator": "DocBook XSL Stylesheets V1.79.1", "creationdate": "2019-04-24T10:32:54-05:00", "upload_timestamp": "2026-02-07T07:23:08.167529", "total_pages": 1055, "file_hash": "89738e550d63820fbb3a833d14ab04029664bcb14dc631bb8a45f0af74d2d6b9", "uploaded_via": "batch_uploader", "source": "downloads... |
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130807-N-NN332-044” by MC3 Jarred Harral/Wikimedia Commons, Public Domain; credit (b): modification of
“Easter Cake with Colorful Topping” by Kaboompics .com/Pexels, CC0)
To help accountants prepare and users better under... | {"batch_upload": true, "moddate": "2020-08-05T15:26:11-05:00", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "total_pages": 1055, "creator": "DocBook XSL Stylesheets V1.79.1", "title": "Principles of Accounting, Volume 1: Financial Accounting", "upload_timestamp": "2026-02-07T07:23:08.167529"... |
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• Losses—losses are similar to expenses but related to “incidental or peripheral” activities of the
organization.
• Assets—items the organization owns, controls, or has a claim to.
• Liabilities—amounts the... | {"file_size_mb": 156.7, "total_pages": 1055, "source_file": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "source": "downloads\\business\\accounting\\FinancialAccounting-OP.pdf", "creator": "DocBook XSL Stylesheets V1.79.1", "uploaded_via": "batch_uploader", "moddate": "2020-08-05T15:26:11-05:00", "fil... |
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