1. The balance sheet
Hello and welcome to Introduction to Financial Statements in Power BI. I'm your instructor, Nikisha Alcindor.
2. Expectations
Before we begin, let's review some expectations.
First, this is an intermediate course, which means you should already have knowledge about DAX and data modeling in Power BI. Pre-requites include Introduction to DAX in Power BI and Data Modeling in Power BI. Second, you will learn the basics about financial statements throughout this course, and no experience is needed!
3. Introduction to financial statements
Financial statements are written records that convey a company's business activities and financial performance.
Financial statements are often audited by government agencies, accountants, firms, etc., to ensure accuracy and for tax, financing, or investing purposes.
4. Introduction to financial statements
There are four financial statements, but in this course we'll focus on the balance sheet and the income statement. Let's start by investigating the balance sheet.
5. The accounting equation
First we need to understand the accounting equation. The equation is assets equals liabilities plus owner's equity and incorporates all the financial information we need to know about the firm. The accounting equation is the basis for the balance sheet financial statement.
6. Assets
The first component of the basic accounting equation are assets. These are normally a resource a business owns that can have a future service or benefit. Assets are split into two categories, long-term and current. Long-Term Assets are not easily converted into cash within a year; think of property or equipment, which might take over a year to sell. Current Assets are cash or easily converted to cash in a year, such as inventory that can be sold. The main assets for an automotive company are cars and the equipment they use to repair them.
7. Liabilities
Liabilities are claims against assets. Think of creditors or someone whom you owe money. Accounts Payable refers to unpaid invoices, whereas notes payable are loans normally against property, and salaries and wages are the amount of money you pay to your employees. An example for an automotive company would be the loans used to purchase their cars.
8. Owner's equity
Owner's Equity is the The ownership claims on total assets. This includes owner's capital or money that the owner of the firm invests into the business, minus the money the owner takes out of the business. This is what we call Owner's drawings. While it is important to understand owner's equity, we will focus on assets and liabilities in this course.
9. Summary of the accounting equation
Here's a summary of the accounting equation.
Assets are resources owned by the firm. Like cash, equipment, etc.
Whereas Liabilities are debts the firm owes, like mortgages or unpaid bills.
Owner's Equity is money the owners put into the firm minus the money taken out of the firm. This can include money the owners use to start the business.
10. Opening a lemonade business
Let's see how opening a lemonade business would change the accounting equation. If you invest 100 dollar into lemons, a juicer and a stand to make lemonade, it means your Assets go up by 100. This 100 dollar came out of your own pocket, meaning owner's equity also went up by a 100.
Consecutively you take out a company loan of 500 dollar, implying your liabilities went up with 500. You invest this 500 in professional lemonade equipment and a freezer, meaning your assets go up by 500.
11. Balance sheet
Once you understand the accounting equation, you already understand the first financial statement: the balance sheet! It reports the assets, liabilities, and owner's equity at a specific moment in time, such as at the month-end or year-end while adhering to the accounting equation. In simple terms it explains what a company owns, and what is owes other companies.
12. Larry's Automotive
Throughout this course, you will be working as a financial analyst deep-diving into Larry's Automotive financial statements.
13. Let's practice!
Enjoy!