Introduction to Financial Statements
Read these sections, which provide a good overview of the statements that make up the financial package for a firm. When you have completed this review, you should be able to identify the income statement, statement of retained earnings, the balance sheet, and the statement of cash flows. You will also be able to discuss the value of each statement.
1. Introduction to Financial Statements
Figure 2.1 Derek's Venture. Technology can be a great tool for those who are far away from friends and family. Tablets are one way for those unfamiliar with technology to become comfortable using technology to connect with others.
As a teenager, Derek loves computers. He also enjoys giving back to the community by helping others. Derek understands that many senior citizens live far away from their families, resulting in infrequent visits and loneliness. This summer he is considering combining both things he enjoys by working with the local retirement center. His idea is to have workshops to show the senior citizens how to connect with their families 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 seniors how to use them. Since he lives nearby, he will also provide support on an as-needed basis.
While he is excited about this opportunity, he is also trying to save up money for college. Although the retirement center will pay him for the workshops, he knows the investment in providing tablets will be expensive, and he wants to ensure he can cover his costs. A neighbor who works in banking suggests that Derek get a small loan to cover the costs of the tablets and use the income he earns to repay the loan. Derek is excited by the idea but is anxious when his neighbor mentions he will have to provide the bank monthly financial information, such as checking account and other financial statements. While he enjoys technology and helping others, he is unfamiliar with financial statements. Derek decides to learn more about how financial statements will help both him and the bank make sound financial decisions.
Source: https://openstax.org/books/principles-financial-accounting/pages/2-why-it-matters
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