Understanding Financial Statements

Learn how balance sheets, income statements, and cash flow statements report historical financial results, reveal profitability, and show cash movements, with stakeholders and assurance levels.

Examine the balance sheet to compare assets, liabilities, and equity, including cash and accounts receivable, to determine if the organization can pay its bills and understand net assets for nonprofits.

Understand how assets are defined as resources owned by an organization and how monetary assets—cash, accounts receivable, and inventory—appear on balance sheet, acquired in a transaction and providing future benefits.

Understand fixed assets, including tangible items like land, buildings, and equipment, and intangible assets like goodwill, and how they are depreciated or amortized on the balance sheet.

Explore how liabilities and equity appear on the balance sheet, including debt, deferred revenue, grants, mortgages, line of credit, and shares, and explain retained earnings for profit and nonprofit contexts.

Explore how income statements show revenue versus expenses to determine net income, with top line and bottom line concepts for profit and not for profit contexts, plus cash flow insights.

Explore the cash flow statement, its three categories—operating, financing, and investing—and how cash flow differs from profit, illustrating positive operating cash flow and factors like receivables and inventory.

Apply a ten-step method to reviewing financial statements, verifying balance sheet balances, assessing the current ratio, liquidity, equity, profitability, and year-over-year expense consistency.

Compare the balance sheet, income statement, and cash flow statement to understand assets, liabilities, net assets or equity, revenues, and receipts. Follow 10 steps to review statements for cash flow.