Stockholders – Owners of the company (receive dividends – a portion earned) Creditors – Loaners / Banks
Interest expense
Business Activities: ! Operatin" Operatin" #ctivi #ctivities ties (#)$ (#)$ Collect Collectin" in" payment payments s ( cash, accounts receivable )% p&rchasin" short-term assets for day'to'day operation ( inventories, supplies )% man&fact&rin" and deliverin" "oods% payin" s&ppliers ( L)(cost of goods sold) ! Investment Investment #ctivit #ctivities ies (#)$ B&yin" B&yin" and sellin" sellin" lon"'ter lon"'term m assets ( long-term investment – advertisement, plants and buildings, land, equipment ) ! *inancin" #ctivities (L% S+)$ Borrow Borrowin" in" or payin" ,ack money to creditors creditors (cash, accounts payable)% receivin" capital ( common stock, additional paid-in capital )from stockholders% payin" dividends
The four basic nancial statements:
1. Bala Balanc nce e Shee Sheett / Statement of *inancial -osition – At a point of time Balance Sheet +.&ation$ # L 0 S+ Balancin" 1e,it acco&nt and Credit acco&nt ormat Assets! – 2eso&rces the company owns with economic val&e that are expected to provide f&t&re economic ,ene3ts C&rrent assets Cash% short'term acco&nts receiva,le / accr&ed reven&e (within reven&e (within acco&ntin" period)% inventories% s&pplies% s&pplies% oil and "as% acc&m&lated depreciation (4#)% (4#) % short' term investments% prepaid expense / deferred expense Lon"'term assets Lon"'term acco&nts receiva,le% land% plants and ,&ildin"s% e.&ipment% lon"' term investments (advertisements)% (advertisements)% intan"i,les
"iabilities and stockholders# equity! (Lia,ilities) – O,li"ations% loans / de,ts to creditors% creditors% s&ppliers and ,&yers% f&t&re sacri3ces for economic ,ene3ts
C&rrent lia,ilities Short'term acco&nts paya,le% short'term notes paya,le% accr&ed expenses paya,le (wa"es paya,le% dividends paya,le% interest paya,le)% &nearned reven&e / deferred reven&e Lon"'term lia,ilities Lon"'term acco&nts paya,le% Lon"'term notes paya,le
Stockholders5 e.&ity terms of net assets
– Book val&e of the company% interest of shareholders in
Common stock (6k par per share x no! of shares total monetary amo&nt)% additional'paid in capital% retained earnin"s
$. %ncome Statement – in an accounting period Income Statement +.&ation$ 2even&es – expenses net income ormat 2even&e Sales reven&e% +xpense Cost of "oods sold% administrative expense% interest expense% advertisin" expense% wa"es expense% ins&rance expense% rental expense% income tax expense (preta& income – income ta& e&pense ' net income )
(. Statement of Stockholders# )quity Statement of Stockholders5 +.&ity +.&ation$ +ndin" ,alance last period (Be"innin" retained earnin"s) 0 net income ' dividends c&rrent retained earnin"s ,alance +ndin" ,alance last period (Be"innin" common stock) 0 stock iss&ance c&rrent common stock ,alance
*. Statement of +ash los Cash *low +.&ation$ Cash 7ows from O 0 I 0 * Chan"e in cash 8et increase (decrease) in cash 0 cash ,alance last period c&rrent cash ,alance
Relationships between the four basic nancial statements:
%ncome Statement et income/ Statement of Stockholders# )quity Statement of Stockholders# )quity 0etained earnings/ Balance Sheet
Statement of +ash los +ash/
Balance Sheet
Making adjusting entries, recording revenues and epenses:
nearned revenue 2 deferred revenue – received payment ,&t has not yet rendered the services Accrued revenue – services have ,een rendered and reven&e is reco"ni9ed% ,&t has not yet received payment (acco&nts receiva,le) 3repaid e&pense 2 deferred e&pense –paid money and received s&pplies ,&t has not yet &sed the s&pplies Accrued e&pense – &sed the services ,&t has not yet paid for them (e!"! acco&nts paya,le for "oods% accr&ed wa"es paya,le)
4+ost of goods sold 2 inventories e&pense is only reco"ni9ed when "oods are sold ' not e.&al to the price sold::
Recogni!ing unearned revenue: Cash is received 1r$ Cash (0#) Cr$ ;nearned reven&e (0L)
Service is rendered 1r$ ;nearned reven&e ('L) Cr$ 2even&e (0S+)
Recogni!ing accrued revenue: Service is rendered 1r$ 2eceiva,les (0#) Cr$ 2even&e (0S+)
Cash is received 1r$ Cash (0#) Cr$ 2eceiva,les ('#)
Recogni!ing prepaid epense: Cash is paid
Services are received
1r$ -repaid expense (0#) Cr$ Cash ('#)
1r$ +xpense ('S+) Cr$ -repaid expense ('#)
"upplies situation: Cash is paid 1r$ S&pplies (0#) Cr$ Cash ('#)
S&pplies are &sed 1r$ +xpense ('S+) Cr$ S&pplies ('#)
Recogni!ing accrued epense: Services are received 1r$ +xpense ('S+) Cr$ -aya,les (0L)
Cash is paid 1r$ -aya,les ('L) Cr$ Cash ('#)
Accumulated depreciation #asset $% 8et asset 4 #sset 4 last period ' acc&m&lated depreciation
