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2.0: Prelude to Financial Statements

  • Page ID
    2749
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    Chapter Outline

    2.1 Describe the Income Statement, Statement of Owner’s Equity, Balance Sheet, and Statement of Cash Flows, and How They Interrelate

    2.2 Define, Explain, and Provide Examples of Current and Noncurrent Assets, Current and Noncurrent Liabilities, Equity, Revenues, and Expenses

    2.3 Prepare an Income Statement, Statement of Owner’s Equity, and Balance Sheet

    Picture of a person in a field by a stream holding up a computer tablet.
    Figure 2.1 Derek’s Venture. Technology can be a great tool for those who are far away from friends and family. Tablets are one way for those unfamiliar with technology to become comfortable using technology to connect with others. (credit: modification of “Lady Elderly” by “MabelAmber”/Pixabay, CC0)

    As a teenager, Derek loves computers. He also enjoys giving back to the community by helping others. Derek understands that many senior citizens live far away from their families, resulting in infrequent visits and loneliness. This summer he is considering combining both things he enjoys by working with the local retirement center. His idea is to have workshops to show the senior citizens how to connect with their families through the use of technology. The director of the retirement center is enthused about Derek’s idea and has agreed to pay him for the services. During his visits, he will set up tablets and then show the seniors how to use them. Since he lives nearby, he will also provide support on an as-needed basis.

    While he is excited about this opportunity, he is also trying to save up money for college. Although the retirement center will pay him for the workshops, he knows the investment in providing tablets will be expensive, and he wants to ensure he can cover his costs. A neighbor who works in banking suggests that Derek get a small loan to cover the costs of the tablets and use the income he earns to repay the loan. Derek is excited by the idea but is anxious when his neighbor mentions he will have to provide the bank monthly financial information, such as checking account and other financial statements. While he enjoys technology and helping others, he is unfamiliar with financial statements. Derek decides to learn more about how financial statements will help both him and the bank make sound financial decisions.


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