Prepare Financial Statements Tutorial

Financial Statement Preparation

Financial Statements ,[object Object]

Financial Statements ,[object Object],The Income Statement

Financial Statements ,[object Object],The Income Statement The Statement of Retained Earnings

Financial Statements ,[object Object],The Income Statement The Statement of Retained Earnings The Balance Sheet

Financial Statements ,[object Object],The Income Statement The Statement of Retained Earnings The Balance Sheet The purpose of these statements is to help users make better decisions.

Income Statement ,[object Object]

Income Statement ,[object Object],[object Object]

Income Statement ,[object Object],Revenues – Expenses = Net Income

Income Statement ,[object Object],Revenues – Expenses = Net Income ,[object Object]

Income Statement ,[object Object],Examples of revenues include sales, service revenue and interest revenue.

Income Statement ,[object Object],Examples of expenses include salaries expense, utility expense and interest expense.

Income Statement ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Income Statement ,[object Object],Example - a book store buys a book for $25 and then sells it for $32. The cost of goods sold is $25.

Income Statement ,[object Object],Accounts such as salaries expense, utility expense, and depreciation expenses are all shown in this section.

Income Statement ,[object Object],Accounts include interest expense and gains and losses of the sale of equipment and investments.

Income Statement ,[object Object],Example – Income before taxes is $50,000. The income tax rate is 30%. Income taxes = $50,000 * 30% = $15,000.

The Statement of Retained Earnings

Statement of Retained Earnings ,[object Object]

Statement of Retained Earnings The format of the statement is:

Statement of Retained Earnings The format of the statement is: Beg. balance, retained earnings + Net income - Dividends End. balance, retained earnings

Statement of Retained Earnings ,[object Object],[object Object]

Balance Sheet ,[object Object]

Balance Sheet ,[object Object],The basic format for the balance sheet is: Assets = Liabilities + Equity

Balance Sheet ,[object Object],Examples include cash, accounts receivable, supplies, buildings and equipment.

Balance Sheet ,[object Object],Examples are accounts payable, unearned revenues and bonds payable.

Balance Sheet ,[object Object],Current assets + Non-current assets Total assets

Balance Sheet ,[object Object],Examples include cash, accounts receivable, inventory, short-term investments, supplies and prepaids.

Balance Sheet ,[object Object],These include accounts such as: long-term investments, land, building, equipment and patents.

Balance Sheet ,[object Object],Current liabilities + Long-term liabilities Total liabilities

Balance Sheet ,[object Object],Examples include accounts payable, short-term notes payable, and taxes payable.

Balance Sheet ,[object Object],Examples include mortgage payable and bonds payable.

Balance Sheet ,[object Object],Contributed capital + Retained earnings Total stockholders’ equity

Balance Sheet ,[object Object],Common Stock and Additional Paid in Capital are accounts in this section.

The Balance Sheet ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Income Statement Net income Statement of Retained Earnings Beginning Retained Earnings + Net income – Dividends Ending retained earnings Balance Sheet Ending Balance Retained Earnings Order of Preparation

[object Object],[object Object],[object Object],Review

Example Problem Cash 5,000 Sales 100,000 Utility Expense 8,000 Buildings 65,000 Common Stock 45,000 Accounts Payable 12,000 Supplies 4,000 Cost of Goods Sold 58,000 Interest Expense 5,000 Additional Paid in Capital 20,000 Bonds Payable 40,000 Supplies Expense 3,000 Salaries Expense 16,000 Accounts Receivable 10,000 Inventories 45,000 Retained Earnings 5,000 (beg. bal.) Income Tax Rate 30%

Assets Cash 5,000 Sales 100,000 Utility Expense 8,000 Buildings 65,000 Common Stock 45,000 Accounts Payable 12,000 Supplies 4,000 Cost of Goods Sold 58,000 Interest Expense 5,000 Additional Paid in Capital 20,000 Bonds Payable 40,000 Supplies Expense 3,000 Salaries Expense 16,000 Accounts Receivable 10,000 Inventories 45,000 Retained Earnings 5,000 (beg. bal.) Income Tax Rate 30%

Assets, Liabilities, Cash 5,000 Sales 100,000 Utility Expense 8,000 Buildings 65,000 Common Stock 45,000 Accounts Payable 12,000 Supplies 4,000 Cost of Goods Sold 58,000 Interest Expense 5,000 Additional Paid in Capital 20,000 Bonds Payable 40,000 Supplies Expense 3,000 Salaries Expense 16,000 Accounts Receivable 10,000 Inventories 45,000 Retained Earnings 5,000 (beg. bal.) Income Tax Rate 30%

Assets, Liabilities, Equity Cash 5,000 Sales 100,000 Utility Expense 8,000 Buildings 65,000 Common Stock 45,000 Accounts Payable 12,000 Supplies 4,000 Cost of Goods Sold 58,000 Interest Expense 5,000 Additional Paid in Capital 20,000 Bonds Payable 40,000 Supplies Expense 3,000 Salaries Expense 16,000 Accounts Receivable 10,000 Inventories 45,000 Retained Earnings 5,000 (beg. bal.) Income Tax Rate 30%

Assets, Liabilities, Equity, Revenues Cash 5,000 Sales 100,000 Utility Expense 8,000 Buildings 65,000 Common Stock 45,000 Accounts Payable 12,000 Supplies 4,000 Cost of Goods Sold 58,000 Interest Expense 5,000 Additional Paid in Capital 20,000 Bonds Payable 40,000 Supplies Expense 3,000 Salaries Expense 16,000 Accounts Receivable 10,000 Inventories 45,000 Retained Earnings 5,000 (beg. bal.) Income Tax Rate 30%

Assets, Liabilities, Equity, Revenues, Expenses Cash 5,000 Sales 100,000 Utility Expense 8,000 Buildings 65,000 Common Stock 45,000 Accounts Payable 12,000 Supplies 4,000 Cost of Goods Sold 58,000 Interest Expense 5,000 Additional Paid in Capital 20,000 Bonds Payable 40,000 Supplies Expense 3,000 Salaries Expense 16,000 Accounts Receivable 10,000 Inventories 45,000 Retained Earnings 5,000 (beg. bal.) Income Tax Rate 30%

Step Two ,[object Object],Sales revenue - Cost of goods sold Gross profit - Operating expenses Income from operations +/- Non-operating items Income before taxes - Income taxes Net income

Income Statement Sales 100,000 - Cost of Goods Sold -58,000 Gross Margin 42,000 - Operating Expenses -27,000 Income from Operations 15,000 - Non-operating Items -5,000 Income before Taxes 10,000 - Income Taxes -3,000 Net Income 7,000

Income Statement Operating expenses include: Utility expense 8,000 Salaries expense 16,000 Supplies expense 3,000 Sales 100,000 - Cost of Goods Sold -58,000 Gross Margin 42,000 - Operating Expenses -27,000 Income from Operations 15,000 - Non-operating Items -5,000 Income before Taxes 10,000 - Income Taxes -3,000 Net Income 7,000

Income Statement Non-operating items include: Interest expense 5,000 Sales 100,000 - Cost of Goods Sold -58,000 Gross Margin 42,000 - Operating Expenses -27,000 Income from Operations 15,000 - Non-operating Items -5,000 Income before Taxes 10,000 - Income Taxes -3,000 Net Income 7,000

Income Statement Income taxes = Income before taxes * Income tax rate 10,000 * 30% = 3,000 Sales 100,000 - Cost of Goods Sold -58,000 Gross Margin 42,000 - Operating Expenses -27,000 Income from Operations 15,000 - Non-operating Items -5,000 Income before Taxes 10,000 - Income Taxes -3,000 Net Income 7,000

Step Three ,[object Object],Beg. balance, retained earnings + Net income - Dividends End. balance, retained earnings

Statement of Retained Earnings Net Income is brought forward from the Income Statement. Beginning Balance, Retained Earnings 5,000 + Net Income +7,000 - Dividends -0 Ending Balance, Retained Earnings 12,000

Step Four ,[object Object],Current assets + Non-current assets Total assets Current liabilities + Long-term liabilities + Stockholders’ equity Total liabilities and stockholders’ equity

Balance Sheet Current Assets: Current Liabilities: Cash 5,000 Accounts Payable 12,000 Accounts Receivable 10,000 Long-term liabilities: Inventories 45,000 Bonds Payable 40,000 Supplies 4,000 Stockholders’ Equity: Non-Current Assets: Common Stock 45,000 Buildings 65,000 Additional Paid in Capital 20,000 Retained Earnings 12,000 Total Assets 129,000 Total Liabilities and Equity 129,000

Balance Sheet End. Bal. is brought forward from the Statement of Retained Earnings Current Assets: Current Liabilities: Cash 5,000 Accounts Payable 12,000 Accounts Receivable 10,000 Long-term liabilities: Inventories 45,000 Bonds Payable 40,000 Supplies 4,000 Stockholders’ Equity: Non-Current Assets: Common Stock 45,000 Buildings 65,000 Additional Paid in Capital 20,000 Retained Earnings 12,000 Total Assets 129,000 Total Liabilities and Equity 129,000

Prepare Financial Statements Tutorial

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