From Scorekeeping to Financial Statements

1
Chapter 2

• From Scorekeeping to Financial Statements

2
Learning Objectives for Chapter 2

• See syllabus

3
Financial Accounting Statements

• Balance Sheet - reports the assets, liabilities,
  and stockholders equity at a specific date
• Income Statement - reports the results of
  operations for a specific period of time
• Retained Earnings Statement - reports the changes
  in retained earnings for a specific period of
  time
• Statement of Cash Flows - reports the cash
  receipts and payments for a specific period of
  time

4
Brief Introduction to the Balance Sheet and
Income Statement

• Balance sheet snapshot of a companys financial
  position at a certain point in time.
• Income statement summarizes financial activity
  of a company for a certain period of time.
• Relationship between the balance sheet and income
  statement

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Basic Terms

• Assets - resources owned by a business
• Liabilities - debts and obligations of the
  business - represents claims of creditors on the
  assets of the business
• Common stock - stock representing the primary
  ownership interest in a corporation

6
Practice With the Balance Sheet and Income
Statement

• Wiggler Company

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Tuesday, June 21

• Email use your COB account. To find your
  account
• Go to the computer lab in the basement
• Log in under your ONID account and open Outlook
• Open a screen to send a new email, type your last
  name in the address space, then key Ctrl k
• A list of email addresses will appear, find your
  COB address
• Access to course materials folder
• Go to the computer lab in the basement and log in
  under your COB username and password. Passwords
  can be obtained in BX 204C, if you forgot yours
  or need one.
• Now, the URL \\cob-storage\classes\BA215wong can
  be used in the Explorer web browser

8
Debit and Credit Conventions and T-accounts

• T-accounts are a convenient way to record
  transaction information and keep running totals
  of accounts.
• Debits represent the left hand side of a
  T-account.
• Credits represent the right hand side of a
  T-account.
• See Fig 2.2 of text
• Balance Sheet Accts. Income Stmt. Accts.
• ? Assets Liabilities ? ?
  Expenses Revenues ?
• Equity ?

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Recording Transactions

• Note for every transaction
• debits credits
• For every transaction involving only balance
  sheet accounts A L E
• Balance sheet for Wiggler, up to transaction 5,
  using T-accounts for assistance.

10
The Trial Balance

• A listing of all debit and credit balances as of
  the balance sheet date
• Used to insure that debits credits for recorded
  transactions
• Checks whether the accounting equation was
  maintained
• No assurance that transactions have been recorded
  properly

11
Trial Balance for Wiggler transactions 1 to 5

• Put together a trial balance for these
  transactions.
• Debit Credit
• Cash 3,250
• Inventory (worms) 220
• Land Farm 750
• Accounts Payable 120
• Note Payable 2,100
• Common Stock 2,000
• Total 4,220 4,220

12
Balance Sheet Classification and Some Common
Accounts

• The balance sheet classifies assets and
  liabilities according to whether they are short-
  or long-term.
• Generally
• Short-term assets are those which will be
  consumed or converted to cash in a year or less.
  All other assets are long-term.
• Short-term liabilities are those which will be
  paid in a year or less. All other liabilities
  are long-term.
• Common balance sheet accounts see sample
  balance sheet, and text pp. 54-58.

13
Income Statement

• Classified income statement
• Definition of elements
• Revenues resource inflows earned from the sale
  of products or services that are the main
  activities of the organization
• Expenses - resource outflows incurred in the sale
  of products or services that are the main
  activities of the organization
• Gains similar to revenues, only from ancillary
  activities of the organization
• Losses similar to expenses, only from ancillary
  activities of the organization

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Table 2.3 From the Text Sample Income Statement
Operating Section

• Net sales 2,500,000
• Cost of goods sold 1,900,000
• Gross margin 600,000
• (Discussion of these three accounts on pp. 50-51)

15
Table 2.3 From the Text Sample Income Statement
Operating Section

• Operating Expenses
• Selling expenses
• Sales salaries 140,000
• Advertising expenses 20,000 160,000
• Administrative expenses
• Office salaries 170,000
• Rent 20,000
• Depreciation 40,000 230,000
• Total operating expenses 210,000
• (Discussion of these accounts on p. 51)

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Table 2.3 From the Text Sample Income Statement
Non-Operating Section to end

• Other income 20,000
• Other expenses (interest) 35,000 55,000
• Income before taxes 195,000
• Income taxes 97,500
• Net Income (Income after taxes) 97,500
• This is the section where gains and losses
  would also appear
• (Discussion of these accounts on pp. 50-51)

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Statement of Retained Earnings

• Helps to link the balance sheet with the income
  statement.
• Closes the results of the income statement (net
  income) to Retained Earnings
• Accounts for dividends paid from Retained
  Earnings.
• Overview of the statement
• Beginning Retained Earnings
• Net income (Net loss)
• - Dividends paid or declared and payable
• Ending Retained Earnings

18
In-class Work

• T/F and multiple choice questions from Ch. 2

19
Homework

• Finish recording the transactions in the Wiggler
  exercise
• After recording the transactions
• Make a trial balance, balance sheet, and income
  statement for Wiggler

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