- Remember that finance is about identifying
necessary resources, figuring out how to get the money
to buy those resources and then managing those resources
efficiently once you have them.
To identify and determine and manage,
you need information.
That's where the financial statements come in.
So we need to talk about accounting for just a minute.
Now don't be afraid of accounting, it's fun
and we will only be talking about it for a few minutes.
So what is accounting?
Accounting is quantitative information,
accounting is numbers about money so it's financial.
And accounting's meant to be practical, useful.
Accounting is not meant to be just a theoretical exercise
although accounting theory is great.
Accounting is designed to be useful in making decisions.
We use accounting information from the past
to make decisions in the present to change the future.
That's accounting.
Here is what we're going to discuss
as we introduce accounting.
First, we will discuss the financial statements,
the balance sheet, the income statement
and the statement of cash flows.
These financial statements provide the raw material
to be used in making finance decisions.
We will look at some basic financial ratios
which are really nothing more
than taking one accounting number
and dividing it by another.
We will be amazed at how much information we can get
just by dividing one number by another
and finally we will get some practice
and financial statement forecasting
using this year's financial statements
to help us forecast the impact of our decisions
on next year's financials.
This is a powerful use of financial statements.
So there are three financial statements:
the balance sheet, the income statement
and the statement of cash flows.
Briefly, a balance sheet is a report as of a point in time.
The balance sheet reports the stuff that you have,
your assets, and your obligations, your liabilities.
As of a point in time such as at the end of the year,
a balance sheet is a listing
of your assets and your liabilities.
An income statement reports how much money you've made
for a period of time such as a month, a quarter or a year.
That's an income statement and finally,
there's the statement of cash flows,
which is a report of where your cash came from
and how you spend it during a period of time
such as a month, a quarter or year.
Those are the three financial statements:
the balance sheet, the income statement
and the statement of cash flows.