Financial Accounting in an Economic Context, 9th Edition

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' equity, 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.

A national retailer since 1913, JCPenney announced in 2012 that it was revamping its operations and business model under the direction of a new chief executive officer (CEO). Eliminating sales promotions and coupons, once staples for the company's retail approach, the new management team, many of whom came from Apple Computer, tried to change the culture of the century-old company. Unfortunately, revenue at JCPenney dropped from $17.3 billion in fiscal year 2011 to $13 billion in fiscal year 2012 and cash balances skidded by $600 million to $930 million, forcing the company to publicly announce that it was considering raising funds by issuing bonds. Operating losses cut into shareholder's equity, leaving the company with only $3.2 billion in equity compared to $6.6 billion in liabilities. Early in 2013 the Board announced that the new CEO was being replaced. These kinds of activities, so vital to JCPenney or any other company, are reflected in different ways on the financial statements—the balance sheet, income statement, statement of shareholders' ...