ACCTG 211 1st Edition Lecture 3 Outline of Last Lecture I The accounting equation II Four Basic Financial Statements a Income Statement b Statement of Changes in Shareholders Equity c Balance Sheet d Statement of Cash Flows III Examples of How different transactions affect the accounting equation Outline of Current Lecture II More Examples on how transactions affect the accounting equation III How to find the income statement IV How to find the statement of changes in shareholder s equity V How to calculate a balance sheet How to calculate cash flows VI Examples of problems discussing cash flow Current Lecture I More Examples on how transactions affect the accounting equation a Jenna contributes 5 000 of her own money to start the business i 5000 increase in cash ii 5000 increase in contributed capital b Jenna provides services to clients for cash 4 215 i 4215 increase in cash ii 4215 increase in service revenue c Jenna borrows 1 200 from the bank by signing a note i 1200 increase in cash ii 1200 increase in notes payable d Jenna pays 1 125 for operating expenses i 1125 decrease in cash ii 1125 increase in operating expense 1 REMEMBER an increase in expense is a decrease in stockholder s equity e Jenna buys a new computer for 3 000 cash These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute II III IV V i 3000 decrease in cash ii 3000 increase in equipment computer iii Because these are both assets the equation is still balanced f Jenna pays a dividend of 1 050 to the owner i 1050 decrease in cash ii 1050 decrease in dividends retained earnings g When you add subtract all of the assets liabilities and stockholder s equity changes the equation WILL be balanced How to find the income statement a Revenue Expenses net income b For the example about Jenna i Revenue the service revenue 4215 ii Expenses operating expenses 1125 iii Revenue Expenses 3090 How to find the statement of changes in shareholder s equity a Beginning CC CS issued Total CC b Beginning RE net income dividends Ending RE c Total CC Ending RE Stockholder s Equity d For the example about Jenna i Beginning CC 0 ii CS issued 500 Total CC iii Beginning RE 0 iv Net Income 3090 v Dividends 1050 vi Ending RE 2040 vii Total CC Ending RE 7040 How to calculate a balance sheet a Assign each transaction to the correct part of the balance sheet b With each transaction the balance sheet should remain EQUAL c For the example about Jenna i Remember Assets Liabilities Stockholder s Equity ii The ending total will be 1 8240 8240 How to calculate cash flows a Starting Cash Net Change in Cash Ending Cash b Cash flows are divided into 3 types of activities i Operating 1 Cash from Operating Activities CFFO comes from Income Statement Activities 2 EX Cash from costumers paying for expenses ii Financing 1 Cash from Financing Activities CFFF comes from Long term Liability and Equity Activities VI VII VIII IX X 2 EX issuing common stock taking out a loan paying dividends iii Investing 1 Cash from Investing Activities CFFI comes from Long Term Asset Activities 2 EX computers land Examples of problems discussing cash flow find out if a Operating Investing or Financing b Any effect on Total Assets c Any effect on Net Income EX 1 Owner provides services to customers for 25 000 cash a Operating i Because it comes from income statement activities b Increase i Increase of cash c Increase i Increase in revenue EX 2 Owner deposits 15 000 into the business checking account in exchange for common stock a Financing i Comes from a long term equity activity b Increase i Receive cash c No change i No revenue or expense EX 3 Owner borrows 1 000 from the bank to use as operating capital a Financing i It is a long term equity loan b Increase i Increase of cash c No change i Is not a revenue or expense EX 4 Owner purchases equipment for 7 500 cash a Investing b It equals out i Cash goes down 7500 ii Equipment goes up 7500 iii Both are assets c No change i It is not a revenue or expense