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BASIC FINANCIAL
STATEMENTS
Introduction
Introduction to
to Financial
Financial Statements
Statements
Three primary
Balance Sheet
financial
Income Statement statements.
Statement of Cash Flows
We will use a corporation
to describe these
statements.
Introduction
Introduction to
to Financial
Financial Statements
Statements
Balance Sheet
Describes
where the
Income Statement enterprise
stands at a
Statement of Cash Flows
specific date.
Introduction
Introduction to
to Financial
Financial Statements
Statements
Balance Sheet
Income Statement
Depicts the
revenue and
Statement of Cash Flows expenses for a
designated
period of time.
Introduction
Introduction to
to Financial
Financial Statements
Statements
Revenues Expenses
result in result in
positive negative
cash flow. cash flow.
Introduction
Introduction to
to Financial
Financial Statements
Statements
Balance Sheet
Income Statement
Net income (or
net loss) is
Statement of Cash Flows simply the
difference
between
revenues and
expenses.
Introduction
Introduction to
to Financial
Financial Statements
Statements
Balance Sheet
Income Statement
Financial
Financial Position
Position
Vagabond Travel Agency
Balance Sheet
December 31, 2005
Assets Liabilities & Owners' Equity
Cash $ 22,500 Liabilities:
Notes receivable 10,000 Notes payable $ 41,000
Accounts receivable 60,500 Accounts payable 36,000
Supplies 2,000 Salaries payable 3,000
Land 100,000 Total liabilities $ 80,000
Building 90,000 Owners' Equity:
Office equipment 15,000 Capital stock 150,000
Retained earnings 70,000
Total $ 300,000 Total $ 300,000
The
The Concept
Concept of
of the
the Business
Business Entity
Entity
A business
entity is
Vagabond separate from
Travel the personal
Agency
affairs of its
owner.
Assets
Assets
Vagabond Travel Agency
Balance Sheet
December 31, 2005
Assets Liabilities & Owners' Equity
Cash Assets are
$ 22,500 Liabilities:
Notes receivable 10,000 economic resources
Notes payable $ 41,000
Accounts receivable 60,500 Accounts payable 36,000
Supplies 2,000 that are owned by
Salaries payable 3,000
Land
Building
100,000
the business and
Total liabilities
90,000 Owners' Equity:
$ 80,000
Liabilities
Liabilities
Vagabond Travel Agency
Balance Sheet
December 31, 2005
Assets Liabilities & Owners' Equity
Liabilities are
Cash $ 22,500 Liabilities:
Notes receivable 10,000 Notes payable $ 41,000
debts that
Accounts receivable 60,500 Accounts payable 36,000
represent negative
Supplies
Land
2,000
100,000
Salaries payable
Total liabilities
3,000
$ 80,000
future cash flows
Building 90,000 Owners' Equity:
Office equipment 15,000 Capital stock 150,000
for the enterprise. Retained earnings 70,000
Total $ 300,000 Total $ 300,000
Owners’
Owners’ Equity
Equity
Vagabond Travel Agency
Balance Sheet
December 31, 2005
Assets Liabilities & Owners' Equity
Owners’ equity
Cash $ 22,500 Liabilities:
Notes receivable 10,000 Notes payable $ 41,000
represents the
Accounts receivable 60,500 Accounts payable 36,000
owners’ claims to
Supplies
Land
2,000
100,000
Salaries payable
Total liabilities
3,000
$ 80,000
the assets of the
Building 90,000 Owners' Equity:
Office equipment 15,000 Capital stock 150,000
business. Retained earnings 70,000
Total $ 300,000 Total $ 300,000
Owners’
Owners’ Equity
Equity
Changes in Owners’
Equity
•Owners’ •Payments
Investments to Owners
•Business •Business
Earnings Losses
The
The Accounting
Accounting Equation
Equation
Assets
Assets ==Vagabond
Liabilities ++ Agency
Travel
Liabilities Owners’
Owners’ Equity
Equity
Balance Sheet
December 31, 2005
$300,000
Assets=
$300,000 = $80,000
$80,000 +Liabilities
+ $220,000
$220,000
& Owners' Equity
Cash $ 22,500 Liabilities:
Notes receivable 10,000 Notes payable $ 41,000
Accounts receivable 60,500 Accounts payable 36,000
Supplies 2,000 Salaries payable 3,000
Land 100,000 Total liabilities $ 80,000
Building 90,000 Owners' Equity
Office equipment 15,000 Capital stock 150,000
Retained earnings 70,000
Total $ 300,000 Total $ 300,000
Let’s analyze
some
transactions for
JJ’s Lawn Care
Service.
Jill realized she had purchased more repair parts than needed.
On May 18, JJ’s was able to sell half of the repair parts to ABC Lawns for
$150, a price equal to JJ’s cost. JJ’s will receive the cash within 30 days.
Investments
Investments by by and
and payments
payments to to the
the owners
owners
are
are not
not included
included on
on the
the Income
Income Statement.
Statement.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2005
JJ's Lawn Care Service 2-28
Lawn
Assets Care Service
= for May 31,
Liabilities + 2005.
Owners' Equity
Accts. Tools & Notes Accts. Capital Retained
Cash + Rec. + Equip. + Truck = Payable + Pay. + Stock + Earnings
May 1 $ 8,000 $ 8,000
Balances $ 8,000 $ 8,000
May 2 (2,500) $ 2,500
Balances $ 5,500 $ 2,500 $ 8,000
May 8 (2,000) $ 15,000 $ 13,000
Balances $ 3,500 $ 2,500 $ 15,000 $ 13,000 $ 8,000
May 11 300 $ 300
Balances $ 3,500 $ 2,800 $ 15,000 $ 13,000 $ 300 $ 8,000
May 18 $ 150 (150)
Balances $ 3,500 $ 150 These
These
$ 2,650 balances
$ 15,000 $ 13,000 will
balances will
$ 300 $ 8,000
May 25 75 (75)
Balances $ 3,575 $ 75 $ 2,650 appear
appear
$ 15,000 on
on
$ the
the $ 300
13,000 $ 8,000
May 28
Balances
(150)
$ 3,425 $ 75
Balance
$ 2,650 Balance
$ 15,000
Sheet.
$Sheet.
13,000
(150)
$ 150 $ 8,000
May 29 750 750
Balances $ 4,175 $ 75 $ 2,650 $ 15,000 $ 13,000 $ 150 $ 8,000 $ 750
May 31 (50) (50)
Balances $ 4,125 $ 75 $ 2,650 $ 15,000 $ 13,000 $ 150 $ 8,000 $ 700
Assets
Assets == Liabilities
Liabilities ++ Owners’
Owners’ Equity
Equity
$21,850
$21,850 == $13,150
$13,150 ++ $8,700
$8,700
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2005
Relationships
Relationships Among
Among Financial
Financial
2-34
Statements
Statements
Date at Date at
beginning end of
of period Time period
Balance Balance
Sheet Sheet
Income Statement
Statement of Cash Flows
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2005
2-35
Financial
Financial Statement
Statement Articulation
Articulation
JJ's Lawn Care Service
Statement of Cash Flows
JJ's Lawn Care Service
For the Month Ended May 31, 2005
Cash flows from operating activities: Income Statement
Cash received from revenue transactions $ 750 For the Month Ended May 31, 2005
Cash paid for expenses (50)
Net cash provided by operating activities $ 700
Cash flows from investing activities:
Sales Revenue $ 750
Purchase of lawn mower $ (2,500) Operating Expense:
Purchase of truck (2,000) Gasoline Expense 50
Collection for sale of repair parts 75
Net Income $ 700
Payment for repair parts (150)
Net cash used by investing activities (4,575)
Cash flows from financing activities:
Investment by owners 8,000
Increase in cash for month $ 4,125 JJ's Lawn Care Service
Cash balance, May 1, 2005 -
Balance Sheet
Cash balance, May 31, 2005 $ 4,125
May 31, 2005
Assets Liabilities
Cash $ 4,125 Notes payable $ 13,000
Accounts receivable 75 Accounts payable 150
Tools & equipment 2,650 Owners' Equity
Truck 15,000 Capital stock 8,000
Retained earnings 700
Total assets $ 21,850 Total liabilities & equity $ 21,850
Forms
Forms of
of Business
Business Organizations
Organizations
Sole
Sole Partnership
Partnership Corporation
Corporation
Proprietorship
Proprietorship
Balance
Balance Sheet
Sheet
Partners' equity
Jill Jones, capital $ 4,000
Partnership
Partnership Bill Jones, capital 4,000
Total partners' equity $ 8,000
Owners' equity
Capital stock $ 7,000
Corporation
Corporation Retained earnings 1,000
Total stockholders' equity $ 8,000
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2005
2-38
Thankyou
Thankyou !!