ACCTG 211 1st Edition Lecture 3Outline of Last Lecture I. The accounting equation II. Four Basic Financial Statementsa. Income Statementb. Statement of Changes in Shareholders’ Equityc. Balance Sheetd. Statement of Cash FlowsIII. Examples of How different transactions affect the accounting equationOutline of Current Lecture II. More Examples on how transactions affect the accounting equationIII. How to find the income statementIV. How to find the statement of changes in shareholder’s equityV. How to calculate a balance sheetHow to calculate cash flows VI. Examples of problems discussing cash flowCurrent LectureI. More Examples on how transactions affect the accounting equationa. Jenna contributes $5,000 of her own money to start the business.i. $5000 increase in cashii. $5000 increase in contributed capitalb. Jenna provides services to clients for cash, $4,215. i. $4215 increase in cashii. $4215 increase in service revenuec. Jenna borrows $1,200 from the bank by signing a note.i. $1200 increase in cashii. $1200 increase in notes payable d. Jenna pays $1,125 for operating expenses.i. $1125 decrease in cashii. $1125 increase in operating expense1. REMEMBER an increase in expense is a decrease in stockholder’s equitye. 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.i. $3000 decrease in cashii. $3000 increase in equipment (computer)iii. Because these are both assets the equation is still balancedf. Jenna pays a dividend of $1,050 to the owner.i. $1050 decrease in cashii. $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 balancedII. How to find the income statementa. Revenue-Expenses = net incomeb. For the example about Jenna:i. Revenue = the service revenue = $4215ii. Expenses= operating expenses = $1125iii. Revenue-Expenses= $3090III. How to find the statement of changes in shareholder’s equitya. Beginning CC + CS issued = Total CCb. Beginning RE + net income – dividends = Ending REc. Total CC + Ending RE = Stockholder’s Equity d. For the example about Jenna: i. Beginning CC = 0ii. CS issued = $500 = Total CCiii. Beginning RE = 0iv. Net Income = $3090v. Dividends = $1050vi. Ending RE = $2040vii. Total CC + Ending RE = $7040IV. How to calculate a balance sheeta. Assign each transaction to the correct part of the balance sheetb. With each transaction the balance sheet should remain EQUALc. For the example about Jennai. Remember: Assets = Liabilities + Stockholder’s Equity ii. The ending total will be:1. $8240=$8240V. How to calculate cash flows a. Starting Cash + Net Change in Cash = Ending Cashb. Cash flows are divided into 3 types of activitiesi. Operating1. Cash from Operating Activities: “CFFO” comes from Income Statement Activities2. EX: Cash from costumers, paying for expensesii. Financing1. Cash from Financing Activities : “CFFF” comes from Long term Liability and Equity Activities2. EX: issuing common stock, taking out a loan, paying dividendsiii. Investing1. Cash from Investing Activities: “CFFI” comes from Long-Term AssetActivities2. EX: computers, landVI. 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?VII. EX 1: Owner provides services to customers for $25,000 cash.a. Operatingi. Because it comes from income statement activitiesb. Increase i. Increase of cashc. Increasei. Increase in revenueVIII. EX 2: Owner deposits $15,000 into the business checking account in exchange for common stock.a. Financingi. Comes from a long term equity activityb. Increasei. Receive cashc. No changei. No revenue or expenseIX. EX 3: Owner borrows $1,000 from the bank to use as operating capital.a. Financingi. It is a long term equity (loan)b. Increasei. Increase of cashc. No changei. Is not a revenue or expenseX. EX 4: Owner purchases equipment for $7,500 cash.a. Investing b. It equals outi. Cash goes down $7500ii. Equipment goes up $7500iii. Both are assetsc. No changei. It is not a revenue or