Business Organization and Financial Statements

### Forms of Business Organization

• Sole proprietorships, partnerships, and corporations are forms of business organization.

Reporting Ownership Equity in the Statement of Financial Position

• Ownership equity is reported differently in the statement of financial position depending on the form of organization.
• Sole proprietorships report owner's equity as "Owner's equity".
• Partnerships report owner's equity as "Partners' equity" and show individual partners' capital accounts.
• Corporations report ownership equity as "Stockholders' equity" and include accounts for "Capital Stock" and "Retained Earnings".

Introduction to Financial Statements

• There are three primary financial statements: the Balance Sheet, the Income Statement, and the Statement of Cash Flows.
• The Balance Sheet describes the financial position of the enterprise at a specific date.
• The Income Statement depicts the revenue and expenses for a specific period of time.
• The Statement of Cash Flows depicts the ways cash has changed during a specific period of time.

Overnight Auto Service Balance Sheet

• As of January 26, 2015, Overnight Auto Service had total assets of 123,800andtotalliabilitiesandowner′sequityof123,800 and total liabilities and owner's equity of 123,800andtotalliabilitiesandowner′sequityof123,800.
• On January 27, 2015, Overnight made a partial payment of 6,800onitsaccountspayable,whichreducedtotalliabilitiesandowner′sequityto6,800 on its accounts payable, which reduced total liabilities and owner's equity to 6,800onitsaccountspayable,whichreducedtotalliabilitiesandowner′sequityto117,000.
• On January 31, 2015, Overnight recorded 2,200inrevenuereceivedincash,increasingtotalassetsandowner′sequityto2,200 in revenue received in cash, increasing total assets and owner's equity to 2,200inrevenuereceivedincash,increasingtotalassetsandowner′sequityto119,200.
• On January 31, 2015, Overnight paid 1,400incashoperatingexpenses,whichdecreasedtotalassetsandowner′sequityto1,400 in cash operating expenses, which decreased total assets and owner's equity to 1,400incashoperatingexpenses,whichdecreasedtotalassetsandowner′sequityto117,800.

Overnight Auto Service Income Statement and Statement of Cash Flows

• The Income Statement for Overnight Auto Service for January 20-31, 2015, shows a net income of $800.
• The Statement of Cash Flows for Overnight Auto Service for January 20-31, 2015, shows a net increase in cash of $16,600.
• The Statement of Cash Flows is divided into three categories: operating activities, investing activities, and financing activities.

Relationships Among Financial Statements

• The Balance Sheet, Income Statement, and Statement of Cash Flows are interconnected.
• The Balance Sheet shows the financial position of the company at a specific point in time.
• The Income Statement shows the company's revenues and expenses for a specific period of time.
• The Statement of Cash Flows shows the company's cash inflows and outflows for a specific period of time.

Financial Statement Articulation

• The Balance Sheet, Income Statement, and Statement of Cash Flows are linked together.
• Changes in cash flows from operating activities are reflected in the net income on the Income Statement, and net income is reflected in retained earnings on the Balance Sheet.
• The Income Statement is used for preparing the Statement of Cash Flows.
• Investors and creditors use financial statements together to make informed decisions about an organization.

Explore the different forms of business organization, including sole proprietorships, partnerships, and corporations. Understand how ownership equity is reported in financial statements such as the Balance Sheet, Income Statement, and Statement of Cash Flows.