- Now, before we get into the complexities
of analyzing transactions and such,
let's step back and look at what this analyzing
of transactions eventually results in.
The financial statements.
One of the major results of bookkeeping
is to provide information with
which individuals can make decisions.
Financial statements are a means whereby the effects
of lots of transactions are summarized and reported
in a manner that is useful to users of financial statements.
The three most common financial statements are
the balance sheet, the income statement
and the statement of cash flows.
Now, let's take a look at each of these in turn.
Now we'll start with the mother of all financial statements,
the balance sheet.
The balance sheet is called
the fundamental financial statement.
It contains a listing of a company's assets, it's resources,
it's valuable things like cash, inventory, land,
those things that it holds to sell.
Those are it's assets.
The other part of the balance sheet is a listing
of where the company got the money to buy those assets.
Liabilities and equities.
The balance sheet embodies the accounting equation.
One of the greatest inventions of the human mind.
Invented in Italy over 500 years ago.
A list of things we own, assets, that's easy.
Anybody can list assets, but the insight
from the accounting equation is to then list also,
where did we get the money to buy those assets?
The liabilities and the equities.
Now assets, they're our valuable resources.
They are items that will provide us benefit in the future.
Cash, for example, is an asset
that we can all quickly identify.
If you look at the balance sheet of Apple,
for example, you see that Apple had on September 29th, 2018,
$25.9 billion in cash.
Now that's a lot of money, but it's not even close
to being Apple's biggest asset.
Another asset is accounts receivable.
Money that is owed by other people to a company.
That's another common asset.
Continuing the Apple example, at the end of September 2018,
customers owed Apple over $23 billion.
Apple also had inventory.
All those iPads, iPods, iMacs and iPhones.
At the end of September 2018,
that totaled almost $4 billion.
Property planned equipment or PP&E,
all of those are resources that a company uses
to accomplish it's objectives.
Apple had over $41 billion in property planned equipment,
but Apple's biggest asset was it's marketable securities.
The stocks and bonds of other companies
that they have purchased.
At the end of September 2018, Apple owned over $211 billion
in the securities of other companies.
Now that is a big asset.