ACC - Creating Financial Statements [LESSON]
Creating Financial Statements
In this lesson, we will dive deeper into the components of the three main financial statements. We will also explore the basic features of spreadsheet software and use spreadsheet software to produce professional business financial statements.
Knowledge Point
In the last lesson, you discovered how the three main financial statements can be used to make informed decisions. Now that you understand the importance of these statements, let’s dissect the individual components of each.
The Balance Sheet
The balance sheet is divided into three main sections: assets, liabilities, and owner’s equity.
The assets section includes all the resources owned by the company. This is further divided into current assets and non-current assets. Current assets are those assets that can be easily converted into cash within one year. Examples of current assets might include cash, accounts receivable, and inventory. Non-current assets are long-term assets that are not expected to be converted into cash within one year. Examples of non-current assets include property, buildings, and equipment.
The liabilities section of the balance sheet includes all the company’s debts and obligations. Like assets, liabilities are also divided into current liabilities and non-current liabilities. Current liabilities are debts that are due within one year, such as accounts payable and short-term loans. Non-current liabilities are long-term debts that are not due within one year, such as long-term loans and bonds.
The owner’s equity (or shareholder’s equity) section represents the ownership interest in the company. It includes the value of stock, retained earnings, and other equity components. The accounting equation calculates the owner’s equity by subtracting total liabilities from total assets.
Balance Sheet | Activity
Review the Balance Sheet below by clicking the information buttons. Click the settings button, then "Zoom to Fit" to maximize this activity so you can read it better.
The Income Statement
The income statement consists of four key components: revenue, expenses, gains, and losses.
Revenue refers to the income generated by a company through its primary activities. For example, a manufacturing company generates revenue from the sale of its products.
Expenses are the costs incurred by a company to operate and generate revenue.
Gains refer to the net income generated from other activities outside the company’s primary operations. They might include income from the sale of long-term assets or one-time non-business activities.
Losses represent expenses incurred from activities that result in a loss, such as the sale of long-term assets at a loss or one-time unusual costs.
Income Statement | Activity
Review the Income Statement below by clicking the information buttons. Click the settings button, then "Zoom to Fit" to maximize this activity so you can read it better.
The Cash Flow Statement
The cash flow statement consists of three main components: cash from operating activities, cash from investing activities, and cash from financing activities.
Cash from operating activities includes cash generated or used in a company’s core business operations. Examples might include: cash receipts from sales, interest payments, income tax payments, payments to suppliers, employee salaries, rent payments, etc.
Cash from investing activities includes cash flows related to a company’s investments. Examples might include: cash from the sale of assets, loans received, and cash outflow for the purchase of assets, loans made, etc.
Cash from financing activities includes cash flows related to a company’s financing activities. Examples include cash from investors and banks, as well as cash outflows for dividends (payment to shareholders), stock repurchases, debt payments, etc.
Cash Flow Statement | Activity
Review the Cash Flow Statement below by clicking the information buttons. Click the settings button, then "Zoom to Fit" to maximize this activity so you can read it better.
Spreadsheet Software
Financial statements are usually created and maintained using spreadsheet software. Spreadsheet software is a computer program that can be used to input, store, and manipulate numerical data. One of the most popular spreadsheet software is Microsoft Excel. However, there are also other spreadsheet software options available.
Watch the video below to learn more about Microsoft Excel. Please be aware that your version of spreadsheet software might be different from the video. Therefore, some portions of your window might look or function differently. If you have a question regarding your spreadsheet software, use the Help feature within the software or conduct online research.
Excel Getting Started | Video
As you watch the video, answer the questions below.
❓ What is the purpose of Excel?
❓ Describe the ribbon and its organization.
❓ What is the function of the Quick Access Toolbars?
❓ What are the components of a worksheet in Excel?
OER Source: GCFGlobal “Excel: Getting Started Links to an external site.” Used according to terms of use.
Now that you have a better understanding of the purpose and function of spreadsheet software, let’s take a closer look at the components that make up the spreadsheet window. Please be aware that your version of spreadsheet software might be different from the images in the learning object below. Therefore, some portions of your window might look or function differently. If you have a question regarding your spreadsheet software, use the Help feature within the software or conduct online research.
Spreadsheet Vocabulary | Practice Activity
Using Formulas in Spreadsheets
One of the biggest advantages of using spreadsheet software is the ability to quickly manipulate large amounts of data and quickly make updates and changes to data. Many spreadsheet software programs, including Microsoft Excel, use formulas to make calculations. The spreadsheet itself only displays the results of the calculations, but these formulas are important because they allow the user to quickly make updates without retyping lots of data or information.
Watch the video below to find out how to input formulas into an Excel spreadsheet. Please be aware that your version of spreadsheet software might be different from the video. Therefore, some portions of your window might look or function differently. If you have a question regarding your spreadsheet software, use the Help feature within the software or conduct online research.
Excel: Intro to Formulas | Video
Watch the video below and ask yourself these questions as you are watching.
❓ What does Excel use for addition in math equations?
❓ In Excel, where does the equals sign come in the equation?
❓ What sign is used for multiplication in Excel?
❓ Why is it recommended to use cell references instead of numbers in Excel formulas?
❓ What is the “point and click” method in Excel?
❓ What is the purpose of the fill handle in Excel?
OER Source: GCFGlobal “Excel: Intro to Formulas Links to an external site.” Used according to terms of use.
Financial Statements | Self-Assessment
Reflection
The balance sheet, income statement, and cash flow statement all provide valuable insights into a company’s financial position. Each statement provides a different snapshot of the health of the company. The balance sheet shows the company’s assets, liabilities, and owner’s equity. The income statement focuses on revenue, expenses, gains, and losses. Finally, the cash flow statement summarizes the movement of cash in and out of the company. By analyzing these statements individually and together, investors, business owners, and stakeholders can gain a comprehensive understanding of a company’s financial health and evaluate the company’s performance over time.
Now that you have a better understanding of how to use spreadsheet software, what are some ways you could possibly use spreadsheet software in your personal life? Do some brainstorming, online research, or open your spreadsheet software to discover how it could benefit you!
[CC BY-NC-SA 4.0 Links to an external site.] UNLESS OTHERWISE NOTED | IMAGES: LICENSED AND USED ACCORDING TO TERMS OF SUBSCRIPTION - INTENDED ONLY FOR USE WITHIN LESSON.