Income Statement (graded)
Students often refer to an income statement as the statement that shows how much money a company has made. Money, by definition, is something that is generally accepted as a medium of exchange or means or payment. Keeping that definition in mind, an income statement is not a measure of money, but rather it is a measure of net income (or loss) also known as profit (or loss).
Select a publicly held company like Apple, Microsoft, IBM, Hewlett Packard, Home Depot (Note: do not select a company already chosen by your classmate). Go to their website and select Investor Relations and there you will find the company’s annual report.
Provide the link to that annual report and based on what you have read about income statements in this chapter and in the Becker materials,tell us what you have learned about the company from reviewing its income statement.
Cash-Flow Statement (graded)
The Statement of Cash Flows has historically given students a lot of heartburn, but it really isn’t that scary. A cash-flow statement, simply stated, reports the uses (where the cash was spent) and the sources (where the cash came from) of cash during a period. Let’s start with a very simplistic set of facts. I run a CPA firm, and I billed my clients $50K during the month of February. To earn that $50K, I incurred $20K of wage expense and another $10K of overhead (rent, utilities, insurance, etc.). So I made $20K profit, right? So I am sitting pretty? Not necessarily. What if I now tell you that $40K of my billings have yet to be collected? And my E&O insurance carrier increased my premium and I had to pre-pay $10K of premiums this month.
a) How does my cash flow differ from my profit?
b) Will these transactions appear on my income statement?
c) My cash-flow statement?