The following is not meant to be legal or financial advice, and is provided for information purposes only.
On October 13, 2006, Professor Solomon N. Darwin of UC Berkeley, gave a lecture to attorneys on the nuts and bolts of financial reporting.
The four basic financial statements are: balance sheet, income statement, statement of cash flows, statement of stockholders’ equity.
In the balance sheet, the assets are listed in the order of liquidity. The balance sheet is based on a specific date. It consists of permanent accounts. It may not be reliable because the numbers can change quickly. The balance sheet lists the company’s assets, liabilities, and equity.One type of asset is goodwill. Goodwill helps the company generate revenues. A company’s reputation is goodwill when it is acquired.
The stockholders’ equity tells investors where the funds go. The assets are equal to the liabilities plus owners’ equity. This equation can be translated to mean the company resources are equal to creditors’ claims to assets plus owners’ claims to assets.
The income statement gives the company’s financial performance during a period. It consists of temporary accounts. When the company begins a new period, the net income is moved to the retained earnings in the shareholders’ equity to enable a fresh start in the new period.
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