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Financial Accounting: In an Economic Context by Jamie Pratt

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CHAPTER 2

The Financial Statements

KEY POINTS

The following key points are emphasized in this chapter:

  • The three basic activities of a business and how they are reflected in the financial statements.
  • The balance sheet, income statement, statement of shareholders' equit and statement of cash flows and how these financial statements are used.
  • Similarities and differences between non-U.S. and U.S. financial statement format and terminology.

In 2008, Borders Group, Inc., one of the nation's largest book retailers, reported a loss from operations of $185 million, a significant change from a $20 million operating loss in the prior year. This deterioration occurred partly as a result of a decrease in revenue of $313 million. From early February 2008 to January 2009, Borders' liabilities decreased by nearly $500 million. Over the same period the company's cash position decreased by $5 million, even though the company used over $260 million in cash to repay debt and over $6 million to pay dividends to shareholders. These kinds of activities, so vital to Borders or any other company, are reflected in different ways on the financial statements—the balance sheet, income statement, statement of shareholders' equity, and statement of cash flows. In this chapter we discuss the financial statements in more detail.

As you read this chapter, consider the following questions. How do operating, investing, and financing decisions affect the dollar amounts reported on the financial statements? What ...

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