1b: Financial Statements E-mail Memo - Essay Example

Jan Waters Financial Advisor Re: Effect of expansion on Financial ments January 9, 2008 The financial activity of companies is stored in an accounting system in order to compile the data to then utilize it to create financial statements that illustrate the financial performance of a company. There are four basic financial statements: income statement, balance sheet, cash flow statement and the statement of retained earnings. This report describes the elements of financial statements and the effect online course offerings will have on the financial statements of the educational organization called Calliope.

The income statement is the financial statement that shows how much a company generated in revenues and how many expenses it incurred in order to determine the net income of a company during a specified time period. The revenues of the company will increase. Since more work will be perform the company will incurred in added cost that will increase the expenses of Calliope. Online course are a profitable business segment that will increase the gross and net margin of the company and result in higher profitability.

The balance sheet of a company is a financial statement used to summarize the financial position of a company in a given time period (Nikolai, Stallman, 1990). The cash asset will increase from greater sales of online courses or the extra cash may be used to pay off some of debt of the company which would decrease debt and slightly increase cash in the balance sheet. The net effect of the sales is placed in an account called the retained earnings account. Retained earnings are the net income at the end of year after deducting the payout of dividends.

The retained earnings is then transfer to the balance sheet of the company. The financial statement that reflects this movement of equity or reduction of equity in the case of a net loss is called the statement of retained earnings.The fourth financial statement is the statement of cash flow. The statement of cash flow reflects the cash position of the company and the movement of cash through out the year in different types of activities such as investing, financing and operating activities. The effect of greater sales from online courses at Calliope should reflect greater movement of cash in different types of activities and possibly a higher year end cash balance unless the money is used for investing activities or to pay off organizational debt.

Appendix A shows specific items influenced by the expansion plan. ReferencesNicolai, L., Bazley, J., Stallman, J. (1990). Principles of Accounting (3rd ed.). Boston: Kent Publishing Company. Appendix A: ItemsFinancial StatementItem EffectIncome StatementExpensesRevenueNet IncomeIncreaseIncreaseIncreaseBalance SheetCashAccount ReceivableEquipmentIncreasedIncreaseIncreaseStatement of Cash FlowCash More cash inflows