字幕列表 影片播放 列印英文字幕 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 here…and you'll see here that the $50 from the income statement flows in here to the statement of retained earnings. So retained earnings…all retained earnings is – is the accumulation of profits or losses in the business over time. So in year 1 which we’re 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 we’re 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 you’re at. So right now in our example we’re 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 house – the 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 we’ll leave this for another time. No sense complicating it here. That summarizes things for now. We’ll talk to you next time. Thanks for stopping by.