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1、1.Walkmethroughthe3financialstatements?The3financialstatementsaretheIncomeStatement,theBalanceSheetandtheCashFlowStatementIncomeStatementgivesthecompany’srevenueandexpensesandgoesdowntoNetIncome,thefinallineofthestatementTheBalancesheetshowsthecompany’sAssets(itsresourcessuch
2、ascash,inventoryandPP&E)aswellasitsLiabilities(suchasDebt,AccountsPayable)andfinallyShareholdersEquity.A=L+OETheCashFlowStatementsbeginswithNetIncome,adjustsfornon-cashexpensesandworkingcapitalchangesandthenlistscashflowfrominvestingandfinancingactivities;attheend,itreportsthec
3、ompany’snetchangeincash2.Howdothe3statementslinktogether?Totiethestatementstogether,NetIncomefromtheIncomeStatementflowsintoSEonthebalancesheet,andintothetoplineofthecashflowstatementChangestothebalancesheetappearasworkingcapitalchangesonthecashflowstatement,andinvestingandfin
4、ancingactivitiesaffectbalancesheetitemssuchasPP&E,DebtandSE.ThecashandSEitemsonthebalancesheetactsas“plugs”withcashflowinginfromthefinallineonthecashflowstatement3.WheredoesdepreciationappearontheIncomeStatement?Itcouldbeaseparatelineitem,oritcouldbeembeddedintheCOGSorOperatin
5、gExpense–everycompanydoesitdifferently4.WhathappenswhenDepreciationgoesupby$10onthestatements?IncomeStatement–OperatingIncomewoulddecreaseby$10andassuminga40%taxrate,NetIncomewouldthendecreaseby$6CashFlowStatement–TheNetIncomewouldinturnbereducedby$6,butthe$10depreciationisano
6、n-cashexpensethatgetsaddedback,thusoverallcashflowfromoperationsgoesupby$4(-$6+$10=+$4)Balancesheet–PP&Egoesdownby$10ontheAssetssidebecauseofthedepreciationandCashgoesupby$4fromthechangesinthecashflowstatementOveralltheassetsaredownby$6,NetIncomeisdownby$6whichimpliesthatSEisd
7、ownby$6.Bothsidesofthebalancesheetfootout.5.IfDepreciationisanon-cashexpense,whydoesitaffectcashbalance?Depreciationistax-deductibleandsincetaxesareacashexpense,depreciationaffectscashbyreducingtheamountoftaxesthecompanypays6.WhathappenswhenAccruedCompensationgoesupby$10?Assum
8、ingaccruedcompensationisnowbeingrecognizedasane