字幕表 動画を再生する 英語字幕をプリント Hi, Else here. And in this video, we'll start exploring financial statements, what they look like, and how they're interconnected. We'll be using ASPE, Accounting Standards for Private Enterprises, to produce our statements. Why are financial statements necessary? Remember that external stakeholders, mainly investors, lenders, and other creditors, have to make decisions about resource allocations-- where to put their money. They use financial statements to answer questions that they may have about a business. From the video on business organization, we know that corporations can be either public or private. Public corporations must follow IFRS. Private corporations can follow either IFRS or ASPE. A private corporation that follows ASPE will produce the following financial statements-- income statement, statement if retained earnings, balance sheet, and the statement of cash flows. Corporations who follow IFRS, whether public or private, must produce the following statements-- income statement, statement of comprehensive income, statement of changes in equity, statement of financial position, and finally, the statement of cash flows. If you wish to learn more about these statements, go to my video on IFRS financial statements. In these videos, we'll only be covering ASPE. Statements must be completed in a specific order and we'll start with the income statement. An income statement reports the results of a businesses day-to-day operations-- the revenues, less the expenses incurred to generate that revenue, to obtain a profit figure called net income. The income statement measures the business's performance within a period of time either annually, quarterly, or monthly. To better understand the income statement, we have to understand the two main elements-- revenues and expenses. Revenues are the income that a business earns. There are only two ways to earn revenue. Businesses either provide a service or a good. The key to revenue is that it must be earned. What does that mean? It means that the business has done their job-- past tense. For example, if a lawn care business plans to mow a customer's lawn tomorrow, it has not earned revenue today, because they have not done their job as yet. After they've finished mowing the customer's lawn, they have earned their revenue. If a retail store plans to sell a product to a customer tomorrow, revenue is not earned because, again, the business has not as yet done their job. Revenues can only be recognized when the business has finished the job, provided the service, or delivered the good. Notice the past tense-- that's very important with regards to the element revenue. To summarize, revenue is income earned through the day-to-day activities of a business when a service or good is provided. Revenue-- earned by providing services or goods. Expenses or the cost of the resources that have been used, consumed, or incurred to help generate revenue. Expenses are best described through an example. If you use gas in a lawnmower when you move a customer's lawn, then the gas that was consumed during the moving of the lawn is an expense-- a cost to earn the revenue. Why? Because the gas was consumed in order to help generate service revenue. Note that the concept of used, consumed, or incurred is important, but so is the fact that these things must have happened in order to earn revenue. Costs or expenses must be matched to the revenue they helped to generate. Expenses-- cost of what is used, consumed, or incurred to help generate revenue. Now that you understand the elements that make up the income statement, let's look at the format. The format of an income statement is important. Note that the heading must always include the company name, the title of the financial statement, and the time period covered. Then revenues are listed first. If there are multiple revenues, you must list each different type of revenue individually, and then show a subtotal called total revenues. Is there a correct order for revenues? Generally, they're placed in the order of magnitude-- meaning from the highest amount to the lowest. Why? Because remember the purpose of financial reporting-- provide information for external users to make resource allocation decisions. Therefore, highlighting the larger sources of revenue first help to make the information more understandable and increases clarity. Expenses are listed next with the heading called operating expenses. The order of expenses, similar to revenues, are from the largest to the smallest. After listing all the expenses, this statement provides a total of all the expenses, excluding income tax expense. Next is the subtotal-- income before income tax expense calculated as total revenue minus total expenses. Then, income tax expense is a separate expense item before listing a final net income amount. Often, textbooks show income tax expense in the same listing as operating expenses. However, this is incorrect. Operating expenses are the costs of operating the business and are controllable, for the most part, by the business. Income tax expense is prescribed by this CRA-- Canada Revenue Agency-- and is not at all controllable. As a consequence, income tax expense must be listed separately. What happens if expenses are greater than revenues? Then a net loss amount is provided that the bottom of the income statement. The statement we have developed here is called the single step income statement. We'll be covering a multiple step income statement in a future video. Remember to pause the video to determine your answer to this check your understanding question about the uses of the income statement. Investors are interested in a business's past performance because it helps them. The answer is not A-- determining the amount of debt a business currently has is answered by reviewing the balance sheet. The answer is not B either-- as the current value of a businesses property, plant, and equipment is not available on any financial statement that is produced under ASPE. The answer is not D either. Determining if a business is profitable enough to repay its debt is what lenders and creditors will use the income statement for, not investors. The correct answer is C as investors are interested in determining the future profitability of the business. Why is this? Because it will help investors determine if they will get the return on their investment that they want in the future. Investors also use the income statement to determine if the business will be in a position to pay dividends. Lenders use the income statement to help them determine if they want to fund a business with loans and if the business will be in a position to repay the loan plus interest in the future. Other creditors use this statement to figure out if the business will be profitable enough to repay their debts as they come due. The long-term survival of any business depends on its ability to produce revenues that are greater than their expenses. Profit allows a business to fund their financing activities by paying dividends to shareholders and interest to lenders. It also allows the business to pay for investing activities, like buying new equipment. Investors and creditors base their decisions on their beliefs about a business's future performance. Income statements, which show past performance, give stakeholders information to help them make predictions about future profitability. The income statement is a statement that is connected to two other financial statements. The net income or net loss from the income statement is used in both the statement of retained earnings and the statement of cash flows under the indirect method. Since the net income from the income statement is used in other statements, it's always the first financial statement completed. The next statement produced is the statement of retained earnings. We'll be covering that statement in our next video.