All right, this segment is about the overview of the financial statements at large. So, an organization operates and it keeps score and the way that an organization keeps score is with the money. And the money ends up on your financial documents. As I've mentioned, there are three key financial documents that we're going to be working with over and over and over again. The balance sheet, the statement of cash flows and your income statement, sometimes called your profit and loss statement or your P&L. Now these documents aren't put together in a random way. Quite the contrary. They're put together in a very methodical way. The methodical way is a thing called GAAP, a General Accepted Accounting Principles. In the absence of GAAP, you get craziness, you get ENRON, you get WorldCom. You get organizations that are suggesting that their financials look one way, when in reality they look completely different. And so we have to go into this understanding that the company is presenting their operations on paper, on these finances. And the auditing process allows us to look at different companies and recognize that when they say, this is what their revenue is, that in fact that's what their revenue is. It gives us the ability to look at one company and compare it to another company. So the GAAP requires that we present information in a very methodical way. First off, it requires that firms present balance sheet information for the two most recent years. And it also requires that the income statement and the statement of cash flow reveal information for the three most recent years. In addition, most organizations will present their financials with notes. That is, GAAP requires a certain type of processes that go on to these statements. But organizations are really interested in making sure that investors have an idea about why it is that things are showing up in the financials the way that they are. And so part of your assignment is going to be reading the notes of the financial statement as well as the financial statement itself. So here are the three components I've mentioned, balance sheet, the income statement, and the statement of cash flows. We're going to start with the balance sheet. So, the balance sheet is a sheet of financial position, and, if you want to think about it, it's really a Polaroid, or a snapshot. I, as an organization, am taking a picture of what I have and that is what's called my balance sheet. And it's a statement in time, it's a snapshot, it's not dynamic at all, it's very static. And when I say I've taken a picture of what I have, when I say, I'm taking a picture of what I have, talking about identifying three elements. The three elements are, what it is that my organization owns that gives me the ability to go out and make a product, to go out and make a profit. And what it is that I owe, the money that I as an organization owe somebody else, loan payments, things of that nature. And then, I also have what's called equity. It's ownership of my own organization, and the balance sheet shows all three of these things. So the balance sheet is a statement of financial position of the organization at a particular period of time, it's a snapshot. It is not dynamic at all. So the end of the year, end of a quarter a company looks at what it has, it takes a snap shot of that and it puts it on paper. And what you're going to see on paper are essentially three different elements. On one side of my balance sheet, I'm going to have all my assets. The assets are everything that I own as an organization that provides value, that allows me to go out and make a sale, if you will. On the other side of the balance sheet are liabilities and equity. The liabilities of an organization, everything that I owe to somebody else, any debt that I have incurred. And my equity is the difference between my assets and my liabilities. And so it's my own ownership in my own company. Let's look at a balance sheet.
