Financial Management: Core Concepts, Third Edition

14.1 Financial Statements

We first studied two primary financial statements in Chapter 2. We now return to these statements and their relationship to the performance of the firm. The two financial statements are

1. the statement of financial position (balance sheet) and

2. the income statement

In this chapter, we look again at Cogswell Cola Company from Chapter 10 and first scrutinize the company’s two financial statements, starting with the balance sheet (Figure 14.1). Here, and throughout the chapter, when we use numbers from a balance sheet, we color-key the numbers in blue.

The balance sheet is the listing of all the assets and all claims against the assets of a company. We use the term balance sheet because the following accounting identity (