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  • Hi. This lesson we're going to talk about how the income statement

  • relates to the statement of retained earnings

  • and then how that statement of retained earnings

  • flows in or relates to the balance sheet.

  • So first of all let’s just define quickly what an income statement is. An income

  • statement is

  • you take all the revenues

  • of the business for the year in this example is year 1

  • which is $1,000

  • and from the revenues you subtract

  • all the expenses.

  • That's the $950

  • in advertising, telephone and other expenses we've identified here.

  • So whatever is left over is something called net income

  • or net profit.

  • There are different ways to call it. But in this example let’s just stick with net income.

  • So the

  • 1,000 minus 950 gives us the net income of $50.

  • Now the second statement hereand you'll see here that the

  • $50 from the income statement

  • flows in here to the

  • statement of retained earnings.

  • So retained earningsall retained earnings isis the accumulation of profits

  • or losses in the business over time.

  • So in year 1

  • which were in now,

  • we have a profit of $50.

  • So the retained earnings at the end of the period is $50. Now let's

  • assume for a second that

  • were at the end of year 2

  • and we had another net income or profit of $25. So at

  • the end of year 2

  • our retained earnings would be $75.

  • Now let’s say in year 3 we had a net loss

  • of $25.

  • So at the end of year 3 our retained earnings would be $50.

  • So again retained earnings is just the accumulation of profits and

  • losses

  • from day 1 of the of the business to whatever point in time youre at.

  • So right now in our example were at the end of year 1.

  • I just wanted to show you what

  • happens to retained earnings when future

  • net incomes and future net losses

  • are factored in.

  • Now the balance sheet.

  • The balance sheet

  • keeps track of all the

  • assets, liabilities,

  • and shareholders equity of the business.

  • So first of all, just to show you how the statement of retained earnings

  • ties into the balance sheet you'll see that the $50 here

  • ties into the balance sheet

  • through the shareholder’s equity section

  • under the

  • name retained earnings.

  • So that $50 flows right through from the income statement

  • to the statement of retained earnings right into the balance sheet.

  • So to wrap up here. To

  • define what a balance sheet is. A balance sheet is

  • and we mention it

  • you look at all the assets of the business. So assets of the business

  • can be anything that the business owns. That could be cash, that can be

  • ...

  • amounts on account that customers owe them,

  • it could be tables, chairs, equipment - that sort of stuff.

  • Liabilities,

  • or items that the company owes money for. So if they bought supplies on account from

  • Staples. Then if

  • they haven’t paid that bill yet

  • that would be an accounts payable.

  • Other types of

  • liabilities would be if they borrowed money and they owe money to the bank.

  • So assets are things they own and

  • liabilities are things they owe.

  • And finally you have something called the shareholders equity section.

  • And there's a couple of components in this section. I just wanted to

  • put in retained earnings - that's the main one. There’s

  • something called capital stock but won’t put that in here right now.

  • So retained earnings is the shareholder’s equity in this example.

  • By definition the balance has to balance. So the equation I just did

  • here assets equals liabilities plus equity.

  • You can see that here the $100 in assets is equal to the $50

  • in liabilities plus the $50

  • in shareholder’s equity.

  • Another way to state this formula that some people

  • prefer it this way

  • is assets minus liabilities

  • equals equity.

  • And in this example,

  • think about a house. If you owned a housethe asset

  • was $100,000 dollars

  • and you owed $50,000 in the mortgage

  • your equity would be $50,000. The same things applies in a

  • business on a balance sheet.

  • So those are just

  • What I wanted to accomplish here is was

  • show you how the income statement, the statement of retained earnings, and balance sheet are all tied to one another

  • and to give you a quick overview of what each financial statement does. And one last thing I forgot to

  • mention on the statement of retained earnings there is something else called dividends that

  • factors into this calculation, but

  • well leave this for another time.

  • No sense complicating it here.

  • That summarizes things for now. Well talk to you next time. Thanks for stopping by.

Hi. This lesson we're going to talk about how the income statement

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B1 中級 美國腔

損益表和資產負債表的關係 (Income statement and balance sheet relationship)

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    陳虹如 發佈於 2021 年 01 月 14 日
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