3 Balance sheet 1 Income statement 2 Statement of retained earnings Carina Tenaglia Notes ACG 2021 Recitation August 29th 2014 Financial Statements Revenues Expenses Net Income Negative income Net loss Beginning Retained Earnings January 1 20xx Add Net income Dividends how much companies decide to pay shareholders Subtract Dividends NOT AN EXPENSE b c not how much lost from operations December 31 20xx Ending Retained Earnings Follows format of the Accounting Equation Assets Liabilities Stockholder s Equity Left Side Assets lists the resources of the firm Right Side Liabilities SHE lists the claims against those resources The accounting equation must ALWAYS be in balance Example of each Assets cash accounts receivable inventory equipment Liabilities stuff company owes accounts payable note payable Stockholders Equity or Owner s equity common stock retained earnings Won t see dividends as part of this b c it s part of retained earnings 4 Statement of cash flows just focuses on cash Cash flow from OPERATING Activities Cash flow from INVESTING Activities Cash flow from FINANCING Activities Net Increase Decrease in Cash Beginning Cash Balance Ending Cash Balance o If the right side of the equation increases the left side must also increase by the same amount o Transactions can also just affect one side of the equation didn t get rest of sentence from slide Total amount from activities Total amount from activities No matter what assets will always Liabilities and Owner s Equity Exercise 1 4 Practice Ch 1 Anything put in parenthesis shown below means it s a NEGATIVE Value The Financial Statements The financial statements are linked together o Income statements reports Net Income which is used on the Statement of RE Retained Earnings o Statement of RE reports the ending balance in RE which is used on the Balance Sheet o Statement of Cash Flows explains changes in the cash account on the balance sheet from one period to the next Best order to complete the financial statements Income statement Statement of RE Balance Sheet Statement of Cash Flows didn t get rest of sentence from slide 58 000 Service Revenue Adv Expense 1 800 Rent Expense 10 400 2 400 Utilities Expense Salary Wages Expense 30 000 Total Expenses 44 600 58 000 Formula 13 400 If the Net Income value were negative it would be regarded as a Net Loss Given 67 000 Add Net Income 13 400 Not given take solution from last problem Less Dividends Given 6 000 Ending RE 74 400 BE 1 5 Liabilities Owner s Equity Accounts Receivable Accounts Payable 65 000 Cash Common Stock 18 000 Retained Earnings 10 000 44 600 71 000 22 000 Dividends are NOT an expense will NEVER be on an Income Statement Beginning RE Expenses Net Income Revenues Formula 93 000 93 000 Assets Which part of Cash Flow Statement Operating Activities Financing Activities Financing Activities Operating Activities Investing Activities E 1 6 BE 1 3 Scenario Cash from customers Cash paid to stockholders Cash received from issuing new common stock Cash paid to suppliers Cash paid to purchase a new office building Retained earnings January 1 130 000 Service revenue 400 000 Total expenses 175 000 Dividends 65 000 Beginning RE Jan 1st Could also be Dec 31st of previous year Add Net Income Service Revenue Expense 225 000 65 000 Friday September 5 2014 Recitation Notes Balance Sheet Review The Accounting Equation Detailed version Classified Balance Sheet Assets Current Assets Long Term investments Property plant and equipment Intangible assets Ending RE 130 000 160 000 Chapter 2 290 000 Current Liabilities Long term liabilities Stockholder s Equity Assets Liabilities Stockholder s Equity Liabilities Stockholder s Equity Balance Sheet continued Current Assets Long Term Investments Assets Ex Cash short term investments accounts receivable inventory prepaid expenses Companies will use dispose of these within 1 year from date of financial statement Assets that a company doesn t expect any return from in less than a year Long term assets expected to be used for business operations over a long period of time Also includes Accumulated Depreciation on these assets Company owned assets that are not tangible or visible Ex Stock investment bond investment Ex Land buildings machinery Intangible Assets Ex trademark patent copyright goodwill Property Plant Equipment Brief Exercise 2 1 Exercise 2 1 Classifying Each Account in the Balance Sheet 1 Accounts Payable 2 Accounts Receivable 3 Buildings 4 Accumulated Depreciation 5 Cash 6 Goodwill 1 Income Taxes Payable 2 Investment Long Term bonds 3 Land 4 Inventory 5 Patent 6 Supplies Liabilities Ex Notes Payable 1 year to pay off Ex Accounts payable Salary and Wages Payable Notes Payable Interest Payable Income Taxes Payable and Current Current Liabilities Obligations that the company must pay off within a year of financial statements Maturities of Long Term Liabilities Long Term Liabilities Obligations that the company has more than a year to pay off Loans and Mortgages Payable Stockholders Equity Common Stock Investment of assets by stockholders into the company Retained Earnings Income retained by the company not paid out Formula Beginning RE Add Revenue Less Dividends SUM Ending RE CL Current Liabilities Current Assets CA Property Plant Equipment PP E Property Plant Equipment PP E CA Current Asset Intangible Asset Current Liability CA Long Term Liability PP E Property Plant Equipment Current Asset CA Intangible Asset CA Current Assets Abbreviations Liquidity Current Assets Profitability o Working Capital o Current Ratio Current Liability Current Assets Long Term Liability Property Plant Equipment Current Asset 1 Interest Payable CL 2 Stock Investments CA to be sold in 7 months 3 Mortgage Payable 4 Equipment PP E 5 Prepaid Rent CA Stock investments are current assets b c stockholders invested in company so the is the company s asset not liability Ratio Analysis A ratio expresses the mathematical relationship between one quantity and another Ratio analysis shows the relationship between selected items of financial data Types of Ratios o Measure income operating success for a period of time o Measures short term ability to pay off maturing obligations and meet unexpected needs for cash CA CL positive ratio CA CL negative ratio Higher ratio is BETTER for the company o Measures ability of a company to survive over a long period of time Total Liabilities Total Assets o Debts to Assets Ratio o Shows percent of financing provided by creditors debt rather
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