BUSN 604 lesson week 1

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American Public University *

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604

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Finance

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Jun 12, 2024

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docx

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Uploaded by SheShe1969

1 The Components and Purpose of a Financial Income Statement Sheila Seal American Public University Course #604 Fundamentals of Business Analysis Instructor: Shelley Pumphrey 4/6/2024

2 Introduction When understanding finance according to Irons (2020) four specific financial statements are published by corporations, which include the balance sheet, the income statement, the statement of cash flow, and the statement of retained income (Irons, 2020, p.136). However, this week’s lesson focuses on all these areas within finance that will be comprehensively broken down and defined accordingly. Body However, the income statement is the primary financial statement, and its specific objective is to collectively reveal the profitability of a business overall. To break it down it shows whether a company made money or lost money and gives the marginal bottom-line profit of loss that was seen in a given time period. However, Irons (2020) gives examples of the major types of expenses that are shown on an income statement which include: 1) Revenue- This is money the company makes which includes: a. Operating revenue b. Non-operating revenue 2) Expenses-This is money the company pays out which includes: a. Operating expenses b. Non-operating expenses 3) Net-Income is the money that is left after you subtract all the expenses from the revenue, which gives you the total amount of money the company made and includes: a. Net-gain b. Net-loss (Irons, 2020, p, 136).

3 However, when looking at a financial statement there are specific major categories that you will see, which contain all revenue, expenses, gains, and losses. Irons (2020)states, “The purpose of a balance sheet is to show an overview of a company's financial position, assets, liabilities, and equity which helps determine how the company is utilizing its capital at a given time frame usually quarterly, or in yearly reporting” Irons. 2020, pp. However, the top of the statement shows the assets of the company, and the bottom half shows the claims against the company’s assets on a balance sheet. They are 3 different accounts that comprise the owner's equity and are very important. According to LTSE, Services (2024), those accounts include: 1. Common Stock: capital through the sale of its common stock to shareholders. 2. Preferred Stock: capital through the sale of its common preferred stock to shareholders. 3. Retained Earnings: accumulated profits retained that are not distributed to shareholders as dividends. We are asked to describe the statement of cash flow and the three standards sections contained in this statement. According to the Introduction to Finical Statement video in our reading and resources the statement of cash flow represents the amount of money that is collected and paid out by a company over a specific time frame, so in general it is saying how the company receives, uses, and the ability to generate cash flow in the future. However, according to McDonald (2019) the three standard sections of the cash flow statement are as followed: 1. Operating activities 2. Investment activities 3. Financing activities (McDonald, 2019, Video File ).

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4 In conclusion, our lesson this week has given a broader view of how we analyze and understand the finical statement. However, it also included reviewing and doing a comprehensive review of the balance statement, cash flow statement, income statement, and owner's equity.

5 References Irons, R. (2020). The fundamental principles of finance. Routledge. McDonald, M. (2019, August 29). Introduction to financial statements [Video file]. In The Business & Management Collection, Henry Stewart Talks. Retrieved April 7, 2024, from https://hstalks.com/bm/4014/ . LTSE, Services, INC., (2024.). What is Common Stocks? Https://Ltse.com/Insights/What-Is- Common-Stock. Retrieved April 7, 2024, from https://ltse.com/insights/what-is- common-stock