1
REMINDERS:
If you don’t have the Day by Day Schedule with all assignments,
please download from Blackboard under Syllabu...
2



    Optional Exercises:
      P 1-10, 15 & 22
    Review Answers in
    Blackboard under :
•        Handouts
•   In t...
3


        OUTLINE FOR TODAY

   ACCT Ch. 2 pp. 76-85
   What is Accounting
   The Accounting Equation
   Financing, ...
2-4




    Objective



2
     What is Accounting?
     How does it measure and
     record business activities?
2-5




Accounting for Business Activities

     Accounting transactions are
    events and activities that cause
      in...
2-6




Accounting for Business Activities

               An account
   • Is a record of the increases and
     decreases...
2-7

What is the Accounting
     Equation?
             Bonus Time
2-8



    The Accounting Equation


                               Owners’
Assets   =   Liabilities   +   Equity
2-8



        The Accounting Equation


                                        Owners’
   Assets      =   Liabilities   ...
2-9



  The Accounting Equation

Assets = Liabilities + Owner’s
                       Equity

2,000 = 500        + 1,500
2-10



     The Accounting Equation

1.Assets decreased by 200
2.Owner’s Equity increased by 300
3.What was change in Lia...
2-11



     The Accounting Equation

1.Assets decreased by 200
2.Owner’s Equity increased by 300
3.What was change in Lia...
2-12



     The Accounting Equation

1.Assets decreased by 200
2.Owner’s Equity increased by 300
3.What was change in Lia...
2-13



      The Accounting Equation


What was change in Liabilities?


500      0    =   $500 Decrease
2-14


Balance Sheet: Asset Accounts
                • Cash
                  •   coins and currency
                  •  ...
2-15


Balance Sheet: Liability Accounts
                     • Accounts
                       Payable
                  ...
2-16

Balance Sheet: Owner’s Equity
           Account
             •Investment by Owner(s)
               •Contributed Ca...
2-17
In Class Exercise: E 2-11
Let’s work this…
       Supplies Inventory      4,350
       Buildings              79,500
...
2-18

Exercise: E 2-11
Answer


                  Assets = Liabilities + Owners’ Equity
Cash                 $ 1,500
Flowe...
2-19




  Day to day activities
 need to be categorized
into 3 different types of
  activities because of
their different...
2-20


  3 Types of Activities:

     Types of Transactions/
           Activities
•Operating Activities
•Financing Activi...
2-21




    Objective



1
Financing Activities:
How do business
raise money?
2-22


Financing Activities
           METHOD #1:
    Contributions by owners to a
             business.
•     Stock Issu...
2-22


Financing Activities
           METHOD #1:
    Contributions by owners to a
             business.
•     Stock Issu...
2-23


Financing Activities
             METHOD #2:

Borrowing from creditors.
• Amount borrowed is the principal
of a loa...
2-24

Exhibit 1   Financing from Owners
                and Creditors




 Favorite




                         Issue Sto...
2-25




    Objective



3
    Investing Activities
    How does a
    company obtain
    long-term
    resources (assets...
2-26


       Investing Activities


Investing activities
•involve the acquisition or disposal of
long-term assets used by...
2-27

Exhibit 4   Investing in Long-Term Resources




            Favorite
2-28




    Objective



4   Operating Activities
    What are the day to day
    operations?
2-29


 Operating Activities


Operating activities
•are those activities
necessary to acquire and
sell goods and services.
2-30


     Operating Activities

Some examples:
•Purchasing merchandise inventory
•Purchasing supplies
•Paying rent
•Payi...
2-31


  Operating Activities

Revenue money received when
  goods or services are sold.


 Expense money paid during
 the...
2-32


Operating Activities
              Merchandise
               inventory
          •is an asset account
          an...
2-33


 Operating Activities
Cost of Goods Sold cost to the
    company of the goods
  transferred to customers.


   Cost...
2-34


      Operating Activities

Retained Earnings is a subcategory of
Owner’s Equity.
  •Accumulation of the Net Profit...
2-35

Examples of each type of activity for a
          Cookie Business
 (Operating, Financing, Investing):
2-36



•Operating- Company buys merchandise
(ingredients to bake cookies such as flour,
chocolate, milk, sugar).

•Financ...
2-37

Exercise: E 2-16
Determine Cash Flow
from Operations – DIRECT METHOD:
 Cash collected from customers              $2...
2-38
Exercise: E 2-16
Determine Cash Flow from Operations:
                                                          In or...
2-39




     Objective



5   Describe how financial
    reports summarize
    business activities and
    provide inform...
2-40




 Financial statements are
reports that summarize the
  results of a company’s
accounting transactions for
      a...
2-41



 What are the 3 main Financial
         Statements?
What is some general information
   you would find in each?
2-42




1. Income Statement (Revenues and
   Expenses)
2. Balance Sheet (Assets, Liabilities and
   Owners Equity)
3. Sta...
2-43


Financing Activities
     •First day for company January 1
     •On January 2, the owners of the
     business cont...
2-44


                   Financing Activities
       Exhibit 3
                                                          ...
2-45


Investing Activities
     •On January 5, Favorite Cookie
     Company paid $6,000 for office
     equipment.
     •...
2-46


               Investing Activities
   Exhibit 3
                                                      OWNERS’
    ...
2-46


               Investing Activities
   Exhibit 3
                                                      OWNERS’
    ...
2-46


               Investing Activities
   Exhibit 3
                                                      OWNERS’
    ...
2-46


               Investing Activities
   Exhibit 3
                                                      OWNERS’
    ...
2-46


               Investing Activities
   Exhibit 3
                                                      OWNERS’
    ...
2-47


               Investing Activities
   Exhibit 3
                                                       OWNERS’
   ...
2-47


               Investing Activities
   Exhibit 3
                                                       OWNERS’
   ...
2-47


               Investing Activities
   Exhibit 3
                                                       OWNERS’
   ...
2-48


               Investing Activities
   Exhibit 3
                                                      OWNERS’
    ...
2-48


               Investing Activities
   Exhibit 3
                                                      OWNERS’
    ...
2-48


               Investing Activities
   Exhibit 3
                                                      OWNERS’
    ...
2-49


               Investing Activities
   Exhibit 3
                                                      OWNERS’
    ...
2-49


               Investing Activities
   Exhibit 3
                                                      OWNERS’
    ...
2-49


               Investing Activities
   Exhibit 3
                                                      OWNERS’
    ...
2-50


                   Investing Activities
       Exhibit 5
                                                          ...
51



    OUTLINE FOR TODAY

 ACCT  Ch. 2 pp. 85-92, 95-98
 Financial reporting and its purposes

 Primary financial st...
2-52


         Operating Activities


                      •On January 7,
                      Favorite Cookie
Favorite...
2-53


                   Operating Activities
       Exhibit 6
                                                          ...
2-53


                   Operating Activities
       Exhibit 6
                                                          ...
2-53


                   Operating Activities
       Exhibit 6
                                                          ...
2-54


                   Operating Activities
       Exhibit 6
                                                          ...
2-54


                   Operating Activities
       Exhibit 6
                                                          ...
2-54


                   Operating Activities
       Exhibit 6
                                                          ...
2-55


                   Operating Activities
       Exhibit 6
                                                          ...
2-55


                   Operating Activities
       Exhibit 6
                                                          ...
2-55


                   Operating Activities
       Exhibit 6
                                                          ...
2-56


         Operating Activities
•In January, Favorite Cookie
Company sells 380 boxes of
cookies (cost to purchase =
$...
2-57


                     Operating Activities
        Exhibit 9
                            ASSETS   = LIABILITIES     ...
2-57


                     Operating Activities
        Exhibit 9
                            ASSETS   = LIABILITIES     ...
2-58


                     Operating Activities
        Exhibit 9
                            ASSETS   = LIABILITIES     ...
2-58


                     Operating Activities
        Exhibit 9
                            ASSETS   = LIABILITIES     ...
2-59


                     Operating Activities
        Exhibit 9
                            ASSETS   = LIABILITIES     ...
2-59


                     Operating Activities
        Exhibit 9
                            ASSETS   = LIABILITIES     ...
2-60


                     Operating Activities
        Exhibit 9
                            ASSETS   = LIABILITIES     ...
2-60


                     Operating Activities
        Exhibit 9
                            ASSETS   = LIABILITIES     ...
2-61


                     Operating Activities
        Exhibit 9
                            ASSETS   = LIABILITIES     ...
2-62


    Operating Activities


Cost of Goods Sold identifies the
 cost to the company of goods
    transferred to custo...
2-63


                     Operating Activities
                 On January 6, paid $300 for
                supplies use...
2-63


                     Operating Activities
                 On January 6, paid $300 for
                supplies use...
2-63


                     Operating Activities
                 On January 6, paid $300 for
                supplies use...
2-64


    Operating Activities

            NOTICE


•Revenues increase owners’ equity
(Retained Earnings)
•Expenses decr...
2-65


                     Operating Activities
                    On January 8, paid $600 for
                         ...
2-65


                     Operating Activities
                    On January 8, paid $600 for
                         ...
2-65


                     Operating Activities
                    On January 8, paid $600 for
                         ...
2-66


                     Operating Activities
               On January 31, paid $1,000 for
                    wages f...
2-66


                     Operating Activities
               On January 31, paid $1,000 for
                    wages f...
2-66


                     Operating Activities
               On January 31, paid $1,000 for
                    wages f...
2-67


                     Operating Activities
                On January 31, paid $200 for
                    utilitie...
2-67


                     Operating Activities
                On January 31, paid $200 for
                    utilitie...
2-67


                     Operating Activities
                On January 31, paid $200 for
                    utilitie...
2-67


                     Operating Activities
                On January 31, paid $200 for
                    utilitie...
2-68

    Transaction Review for January
•   Received from Owners $10,000
•   Received from Creditors $8,000 & $22,000
•  ...
2-69

    Transaction Review for January
         Transaction Review
•   In January, Favorite Cookie Company sells 380 box...
2-70
                    Exhibit 12
                                 January 31
     Account                      Balance
...
2-70
                    Exhibit 12
                                     January 31
     Account                          ...
2-70
                    Exhibit 12
                                 January 31
     Account                      Balance
...
2-71
                    Exhibit 12
                                    January 31
     Account                         Ba...
2-72
                    Exhibit 12
                                    January 31
     Account                         Ba...
2-73




   …So what comes next…after
 knowing the balances, we need to
  create the Financial Statements:

1.Income State...
2-74




What are 3 accounts in the Income
           Statement?
2-75




      Income Statement
         Example Accounts

•   Sales Revenue
•   Cost of Goods Sold
•   Interest Expense
•...
2-76



The income statement reports
 revenues and expenses for a
  fiscal period as a means of
    determining how well a...
2-77
                  Favorite Cookie Company      Exhibit 13
                     Income Statement
            For the M...
2-77
                  Favorite Cookie Company      Exhibit 13
                     Income Statement
            For the M...
2-78
                 Favorite Cookie Company
                    Income Statement
           For the Month Ended January ...
2-78
                 Favorite Cookie Company
                    Income Statement
           For the Month Ended January ...
2-78
                 Favorite Cookie Company
                    Income Statement
           For the Month Ended January ...
2-79
                 Favorite Cookie Company
                    Income Statement
           For the Month Ended January ...
2-80




 A balance sheet identifies a
company’s assets and claims
 to those assets by creditors
and owners at a specific ...
2-81
                            Exhibit 14

                   Favorite Cookie Company
                        Balance Sh...
2-81
                            Exhibit 14

                   Favorite Cookie Company
                        Balance Sh...
2-82
                            Exhibit 14

                   Favorite Cookie Company
                        Balance Sh...
2-83




The statement of cash flows
reports events that affected a
  company’s cash account
   during a fiscal period.
2-84




The information used for preparing
the statement of cash flows comes
from what account?

In what statement is tha...
2-85




Cash Account found on the
      Balance Sheet.
 Look at all Inflows and
Outflows of CASH ONLY!
2-86
                          Exhibit 15

                 Favorite Cookie Company
                  Statement of Cash Fl...
2-86
                          Exhibit 15

                 Favorite Cookie Company
                  Statement of Cash Fl...
2-87



Carried forward                                      $(28,900)
Financing Activities
 Received from creditors      ...
2-87



Carried forward                                      $(28,900)
Financing Activities
 Received from creditors      ...
2-88

                    Exercise 2-17

Listed below and on the next slide are typical accounts or
titles that appear on ...
2-88

                    Exercise 2-17

Listed below and on the next slide are typical accounts or
titles that appear on ...
2-88

                    Exercise 2-17

Listed below and on the next slide are typical accounts or
titles that appear on ...
2-88

                    Exercise 2-17

Listed below and on the next slide are typical accounts or
titles that appear on ...
2-88

                    Exercise 2-17

Listed below and on the next slide are typical accounts or
titles that appear on ...
2-88

                    Exercise 2-17

Listed below and on the next slide are typical accounts or
titles that appear on ...
2-88

                    Exercise 2-17

Listed below and on the next slide are typical accounts or
titles that appear on ...
2-89

               Exercise 2-17




Contributed capital
Rent expense
Cash
Notes payable
2-89

               Exercise 2-17




Contributed capital    Balance sheet
Rent expense
Cash
Notes payable
2-89

               Exercise 2-17




Contributed capital    Balance sheet
Rent expense           Income statement
Cash
N...
2-89

               Exercise 2-17




Contributed capital    Balance sheet
Rent expense           Income statement
Cash  ...
2-89

               Exercise 2-17




Contributed capital    Balance sheet
Rent expense           Income statement
Cash  ...
2-90
Reporting the Transformation Process
Assets
           $40,000       Profit
           +11,400       Revenues $11,400...
2-90
    Reporting the Transformation Process
    Assets
               $40,000       Profit
               +11,400       ...
2-90
    Reporting the Transformation Process
    Assets
               $40,000       Profit
                         2
  ...
2-90
    Reporting the Transformation Process
    Assets
               $40,000        Profit
                         2
 ...
2-90
    Reporting the Transformation Process
    Assets
               $40,000        Profit
                         2
 ...
2-90
        Reporting the Transformation Process
        Assets
                   $40,000        Profit
                ...
2-91


  Financial Analysis


Return on Assets (ROA)
is the ratio of net income
      to total assets.
2-91


  Financial Analysis


Return on Assets (ROA)
is the ratio of net income
      to total assets.
          Net Incom...
2-92


   Financial Analysis

    For Favorite Cookie
Company at January 31, 2007,
      ROA is 7.5%

           Net Incom...
2-92


   Financial Analysis

    For Favorite Cookie
Company at January 31, 2007,
      ROA is 7.5%

           Net Incom...
2-93


   Financial Analysis

    For Favorite Cookie
Company at January 31, 2007,
      ROA is 7.5%

             $3,220
...
2-93


   Financial Analysis

    For Favorite Cookie
Company at January 31, 2007,
      ROA is 7.5%

             $3,220
...
2-93


   Financial Analysis

    For Favorite Cookie
Company at January 31, 2007,
      ROA is 7.5%

             $3,220
...
2-94


 Financial Analysis


 Return on Investment
(ROI) is the ratio of net
 income to investment.
2-94


 Financial Analysis


 Return on Investment
(ROI) is the ratio of net
 income to investment.
          Net Income
 ...
2-95


   Financial Analysis

    For Favorite Cookie
Company at January 31, 2007,
       ROI is 32%

           Net Incom...
2-95


   Financial Analysis

    For Favorite Cookie
Company at January 31, 2007,
       ROI is 32%

           Net Incom...
2-95


   Financial Analysis

    For Favorite Cookie
Company at January 31, 2007,
       ROI is 32%

           Net Incom...
2-96


   Financial Analysis

    For Favorite Cookie
Company at January 31, 2007,
       ROI is 32%

             $3,220
...
2-96


   Financial Analysis

    For Favorite Cookie
Company at January 31, 2007,
       ROI is 32%

             $3,220
...
2-96


   Financial Analysis

    For Favorite Cookie
Company at January 31, 2007,
       ROI is 32%

             $3,220
...
2-97


  Financial Analysis


 Return on Sales (ROS)
is the ratio of net income
          to sales.
2-97


  Financial Analysis


 Return on Sales (ROS)
is the ratio of net income
          to sales.
          Net Income
 ...
2-98


   Financial Analysis

    For Favorite Cookie
Company at January 31, 2007,
      ROS is 28%

           Net Income...
2-98


   Financial Analysis

    For Favorite Cookie
Company at January 31, 2007,
      ROS is 28%

           Net Income...
2-98


   Financial Analysis

    For Favorite Cookie
Company at January 31, 2007,
      ROS is 28%

           Net Income...
2-99


   Financial Analysis

    For Favorite Cookie
Company at January 31, 2007,
      ROS is 28%

            Net Incom...
2-99


   Financial Analysis

    For Favorite Cookie
Company at January 31, 2007,
      ROS is 28%

            Net Incom...
2-99


   Financial Analysis

    For Favorite Cookie
Company at January 31, 2007,
      ROS is 28%

            Net Incom...
2-100




CHAPTER 2

        THE END –
    See you on Thursday!
Don’t forget assignments due:
1.       Homework #1
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  • Accounting information is like a map of an organization. Accounting measures an organization’s activities by the dollar amounts associated with the activities.


















  • Accounting information is like a map of an organization. Accounting measures an organization’s activities by the dollar amounts associated with the activities.
  • Accounting information is like a map of an organization. Accounting measures an organization’s activities by the dollar amounts associated with the activities.







  • Financing activities- Occur when owners or creditors provide resources to a company or when a company transfers resources to owners or creditors.












  • Accounting information is like a map of an organization. Accounting measures an organization’s activities by the dollar amounts associated with the activities.















































  • $7,200 initial investment in merchandize inventory less $6,080 cost of goods sold = $1,120
  • $7,200 initial investment in merchandize inventory less $6,080 cost of goods sold = $1,120
  • Purchases of office equipment and delivery van
  • Company’s initial loan for $8,000 plus additional loan of $22,000






















































  • D. acct chapter 2.key

    1. 1. 1 REMINDERS: If you don’t have the Day by Day Schedule with all assignments, please download from Blackboard under Syllabus! WEEK OF 9/15 AND 9/17 • Homework #1: Ch. 2- E2-9 & P2-3 (Due 9/17/09 by Midnight) - 10 points – [Log in blackboard under course documents >> click on ILRN Assignments & Grades] • Review CAPSIM simulation slides • Complete CAPSIM “Introductory Lesson” & “Rehearsal 4
    2. 2. 2 Optional Exercises: P 1-10, 15 & 22 Review Answers in Blackboard under : • Handouts • In the folder called: Solutions to Recommended Problems
    3. 3. 3 OUTLINE FOR TODAY  ACCT Ch. 2 pp. 76-85  What is Accounting  The Accounting Equation  Financing, Investing, Operating Activities
    4. 4. 2-4 Objective 2 What is Accounting? How does it measure and record business activities?
    5. 5. 2-5 Accounting for Business Activities Accounting transactions are events and activities that cause increases and decreases in account balances.
    6. 6. 2-6 Accounting for Business Activities An account • Is a record of the increases and decreases in the dollar amount associated with a specific resource or activity.
    7. 7. 2-7 What is the Accounting Equation? Bonus Time
    8. 8. 2-8 The Accounting Equation Owners’ Assets = Liabilities + Equity
    9. 9. 2-8 The Accounting Equation Owners’ Assets = Liabilities + Equity Resources The claims of Owners’ claims controlled by the creditors to a on the company’s business company’s resources assets
    10. 10. 2-9 The Accounting Equation Assets = Liabilities + Owner’s Equity 2,000 = 500 + 1,500
    11. 11. 2-10 The Accounting Equation 1.Assets decreased by 200 2.Owner’s Equity increased by 300 3.What was change in Liabilities? 2,000 = 500 + 1,500
    12. 12. 2-11 The Accounting Equation 1.Assets decreased by 200 2.Owner’s Equity increased by 300 3.What was change in Liabilities? 1,800 = ? + 1,800
    13. 13. 2-12 The Accounting Equation 1.Assets decreased by 200 2.Owner’s Equity increased by 300 3.What was change in Liabilities? 1,800 = 0 + 1,800
    14. 14. 2-13 The Accounting Equation What was change in Liabilities? 500 0 = $500 Decrease
    15. 15. 2-14 Balance Sheet: Asset Accounts • Cash • coins and currency • bank deposits • short-term investments that can be converted easily into currency • Merchandise Inventory • Equipment • Vehicles • Computers • Furniture
    16. 16. 2-15 Balance Sheet: Liability Accounts • Accounts Payable 1. Interest Payable 2. Dividends Payable 3. Rent Payable • Notes Payable 1. Bank Loan Payable 2. Bond Payable
    17. 17. 2-16 Balance Sheet: Owner’s Equity Account •Investment by Owner(s) •Contributed Capital (for Proprietorships/ Partnerships) •Stock (for Corporations) PLUS •Retained Earnings
    18. 18. 2-17 In Class Exercise: E 2-11 Let’s work this… Supplies Inventory 4,350 Buildings 79,500 Cash 1,500 Equipment 12,750 Flowers and Plants 26,000 Notes Payable 57,500 Proprietor’s Capital 66,600 Assets = Liabilities + Owner’s Equity
    19. 19. 2-18 Exercise: E 2-11 Answer Assets = Liabilities + Owners’ Equity Cash $ 1,500 Flowers and Plants 26,000 Supplies Inventory 4,350 Buildings 79,500 Equipment 12,750 Notes Payable $57,500 Proprietor’s Capital $66,600 Total $124,100 = $57,500 + $66,600 $124,100
    20. 20. 2-19 Day to day activities need to be categorized into 3 different types of activities because of their different purpose!
    21. 21. 2-20 3 Types of Activities: Types of Transactions/ Activities •Operating Activities •Financing Activities •Investing Activities
    22. 22. 2-21 Objective 1 Financing Activities: How do business raise money?
    23. 23. 2-22 Financing Activities METHOD #1: Contributions by owners to a business. • Stock Issues (Corporations) • Owner Contributions (Proprietorships/Partnerships) • Recorded under owners’ equity
    24. 24. 2-22 Financing Activities METHOD #1: Contributions by owners to a business. • Stock Issues (Corporations) • Owner Contributions (Proprietorships/Partnerships) • Recorded under owners’ equity
    25. 25. 2-23 Financing Activities METHOD #2: Borrowing from creditors. • Amount borrowed is the principal of a loan. • Interest is the cost of borrowing and is paid to creditors in addition to the repayment of principal.
    26. 26. 2-24 Exhibit 1 Financing from Owners and Creditors Favorite Issue Stocks Issue Bonds
    27. 27. 2-25 Objective 3 Investing Activities How does a company obtain long-term resources (assets)?
    28. 28. 2-26 Investing Activities Investing activities •involve the acquisition or disposal of long-term assets used by a business.
    29. 29. 2-27 Exhibit 4 Investing in Long-Term Resources Favorite
    30. 30. 2-28 Objective 4 Operating Activities What are the day to day operations?
    31. 31. 2-29 Operating Activities Operating activities •are those activities necessary to acquire and sell goods and services.
    32. 32. 2-30 Operating Activities Some examples: •Purchasing merchandise inventory •Purchasing supplies •Paying rent •Paying for employee wages •Paying for utilities •Selling your product or service
    33. 33. 2-31 Operating Activities Revenue money received when goods or services are sold. Expense money paid during the process of acquiring and selling goods and services.
    34. 34. 2-32 Operating Activities Merchandise inventory •is an asset account and identifies the cost of goods a company has purchased that are available for sale to customers.
    35. 35. 2-33 Operating Activities Cost of Goods Sold cost to the company of the goods transferred to customers. Cost of Goods Sold is an Expense
    36. 36. 2-34 Operating Activities Retained Earnings is a subcategory of Owner’s Equity. •Accumulation of the Net Profit year to year. These are the profits that are “retained” and have been reinvested in the business.
    37. 37. 2-35 Examples of each type of activity for a Cookie Business (Operating, Financing, Investing):
    38. 38. 2-36 •Operating- Company buys merchandise (ingredients to bake cookies such as flour, chocolate, milk, sugar). •Financing- Company borrows $10,000 from Bank of America to purchase oven. •Investing- Company buys oven (long term asset) with $10,000 to bake cookies for business.
    39. 39. 2-37 Exercise: E 2-16 Determine Cash Flow from Operations – DIRECT METHOD: Cash collected from customers $270,000 Cash paid for merchandise inventory 83,500 Cash paid for utilities 25,000 Cash paid for insurance 23,000 Cash paid for equipment 76,500 Cash paid to employees 58,000 Cash paid for postage 7,500 Cash paid to owners 5,000 Cash received from sale of old equipment 18,500
    40. 40. 2-38 Exercise: E 2-16 Determine Cash Flow from Operations: In or List Outflow? Category Cash collected from customers $ 270,000 $ Operating 270,000 $ Cash paid for merchandise inventory $ 83,500 Operating (83,500) $ Cash paid for utilities $ 25,000 Operating (25,000) $ Cash paid for insurance $ 23,000 Operating (23,000) Cash paid for equipment $ 76,500 $ Investing (76,500) $ Cash paid to employees $ 58,000 Operating (58,000) $ Cash paid for postage $ 7,500 Operating (7,500) Cash paid to owners $ 5,000 $ Financing (5,000) $ Cash received from sale of old equipment $ 18,500 18,500 Investing Cash Flow from Operating 73,000 Cash Flow from Investing (58,000) Cash Flow from Financing (5,000) Net Cash Flow   10,000
    41. 41. 2-39 Objective 5 Describe how financial reports summarize business activities and provide information for business decisions.
    42. 42. 2-40 Financial statements are reports that summarize the results of a company’s accounting transactions for a fiscal period.
    43. 43. 2-41 What are the 3 main Financial Statements? What is some general information you would find in each?
    44. 44. 2-42 1. Income Statement (Revenues and Expenses) 2. Balance Sheet (Assets, Liabilities and Owners Equity) 3. Statement of Cash Flows (Operating, Investing and Financing Activities)
    45. 45. 2-43 Financing Activities •First day for company January 1 •On January 2, the owners of the business contributed $10,000. •On January 3, the owners borrowed $8,000 from the local bank.
    46. 46. 2-44 Financing Activities Exhibit 3 OWNERS’ ASSETS = LIABILITIES + Date Accounts EQUITY Beginning Amounts 0 = 0 + 0 1/2 Cash 10,000 Contributed Capital 10,000 1/3 Cash 8,000 Notes payable 8,000 Ending Amounts 18,000 = 8,000 + 10,000
    47. 47. 2-45 Investing Activities •On January 5, Favorite Cookie Company paid $6,000 for office equipment. •On January 6, the company bought a delivery van for $25,000. It paid $3,000 in cash and financed the remaining $22,000 of the purchase price with a note payable.
    48. 48. 2-46 Investing Activities Exhibit 3 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts 18,000 = 8,000 + 10,000 1/5 Equipment 6,000 Cash –6,000 1/6 Equipment 25,000 Cash On January 5, one asset increased –3,000 Notes Payable and another asset decreased (Equipment) 22,000 (Cash) by the same amount, so30,000 + Ending Amounts 40,000 = the accounting 10,000 equation remained unchanged.
    49. 49. 2-46 Investing Activities Exhibit 3 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts 18,000 = 8,000 + 10,000 1/5 Equipment 6,000 Cash –6,000 1/6 Equipment 25,000 Cash On January 5, one asset increased –3,000 Notes Payable and another asset decreased (Equipment) 22,000 (Cash) by the same amount, so30,000 + Ending Amounts 40,000 = the accounting 10,000 equation remained unchanged.
    50. 50. 2-46 Investing Activities Exhibit 3 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts 18,000 = 8,000 + 10,000 1/5 Equipment 6,000 Cash –6,000 1/6 Equipment 25,000 Cash On January 5, one asset increased –3,000 Notes Payable and another asset decreased (Equipment) 22,000 (Cash) by the same amount, so30,000 + Ending Amounts 40,000 = the accounting 10,000 equation remained unchanged.
    51. 51. 2-46 Investing Activities Exhibit 3 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts 18,000 = 8,000 + 10,000 1/5 Equipment 6,000 Cash –6,000 1/6 Equipment 25,000 Cash On January 5, one asset increased –3,000 Notes Payable and another asset decreased (Equipment) 22,000 (Cash) by the same amount, so30,000 + Ending Amounts 40,000 = the accounting 10,000 equation remained unchanged.
    52. 52. 2-46 Investing Activities Exhibit 3 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts 18,000 = 8,000 + 10,000 1/5 Equipment 6,000 Cash –6,000 1/6 Equipment 25,000 Cash On January 5, one asset increased –3,000 Notes Payable and another asset decreased (Equipment) 22,000 (Cash) by the same amount, so30,000 + Ending Amounts 40,000 = the accounting 10,000 equation remained unchanged.
    53. 53. 2-47 Investing Activities Exhibit 3 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts 18,000 = 8,000 + 10,000 1/5 Equipment 6,000 Cash –6,000 1/6 Equipment 25,000 Cash –3,000 Notes Payable 22,000 Ending Amounts 40,000 = 30,000 + On January 6, the company acquired 10,000 a delivery van for $25,000.
    54. 54. 2-47 Investing Activities Exhibit 3 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts 18,000 = 8,000 + 10,000 1/5 Equipment 6,000 Cash –6,000 1/6 Equipment 25,000 Cash –3,000 Notes Payable 22,000 Ending Amounts 40,000 = 30,000 + On January 6, the company acquired 10,000 a delivery van for $25,000.
    55. 55. 2-47 Investing Activities Exhibit 3 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts 18,000 = 8,000 + 10,000 1/5 Equipment 6,000 Cash –6,000 1/6 Equipment 25,000 Cash –3,000 Notes Payable 22,000 Ending Amounts 40,000 = 30,000 + On January 6, the company acquired 10,000 a delivery van for $25,000.
    56. 56. 2-48 Investing Activities Exhibit 3 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts 18,000 = 8,000 + 10,000 1/5 Equipment 6,000 Cash –6,000 1/6 Equipment 25,000 Cash –3,000 Notes Payable 22,000 Ending Amounts 40,000 = 30,000 + The company paid $3,000 10,000 in cash.
    57. 57. 2-48 Investing Activities Exhibit 3 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts 18,000 = 8,000 + 10,000 1/5 Equipment 6,000 Cash –6,000 1/6 Equipment 25,000 Cash –3,000 Notes Payable 22,000 Ending Amounts 40,000 = 30,000 + The company paid $3,000 10,000 in cash.
    58. 58. 2-48 Investing Activities Exhibit 3 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts 18,000 = 8,000 + 10,000 1/5 Equipment 6,000 Cash –6,000 1/6 Equipment 25,000 Cash –3,000 Notes Payable 22,000 Ending Amounts 40,000 = 30,000 + The company paid $3,000 10,000 in cash.
    59. 59. 2-49 Investing Activities Exhibit 3 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts 18,000 = 8,000 + 10,000 1/5 Equipment 6,000 Cash –6,000 1/6 Equipment 25,000 Cash –3,000 Notes Payable 22,000 Ending Amounts 40,000 = 30,000 + The balance of $22,000 was financed 10,000 by issuing a note payable.
    60. 60. 2-49 Investing Activities Exhibit 3 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts 18,000 = 8,000 + 10,000 1/5 Equipment 6,000 Cash –6,000 1/6 Equipment 25,000 Cash –3,000 Notes Payable 22,000 Ending Amounts 40,000 = 30,000 + The balance of $22,000 was financed 10,000 by issuing a note payable.
    61. 61. 2-49 Investing Activities Exhibit 3 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts 18,000 = 8,000 + 10,000 1/5 Equipment 6,000 Cash –6,000 1/6 Equipment 25,000 Cash –3,000 Notes Payable 22,000 Ending Amounts 40,000 = 30,000 + The balance of $22,000 was financed 10,000 by issuing a note payable.
    62. 62. 2-50 Investing Activities Exhibit 5 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts 18,000 = 8,000 + 10,000 1/5 Equipment 6,000 Cash –6,000 1/6 Equipment 25,000 Cash –3,000 Notes Payable 22,000 Ending Amounts 40,000 = 30,000 + 10,000
    63. 63. 51 OUTLINE FOR TODAY  ACCT Ch. 2 pp. 85-92, 95-98  Financial reporting and its purposes  Primary financial statements
    64. 64. 2-52 Operating Activities •On January 7, Favorite Cookie Favorite Cookie Co. Company purchased cookies from the bakery at a cost of $7,200.
    65. 65. 2-53 Operating Activities Exhibit 6 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts40,000 = 30,000 + 10,000 Jan. 7 Merchandise Inven. 7,200 Cash –7,200 Ending Amounts 40,000 = 30,000 + 10,000 The company now has goods costing $7,200 for sale.
    66. 66. 2-53 Operating Activities Exhibit 6 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts40,000 = 30,000 + 10,000 Jan. 7 Merchandise Inven. 7,200 Cash –7,200 Ending Amounts 40,000 = 30,000 + 10,000 The company now has goods costing $7,200 for sale.
    67. 67. 2-53 Operating Activities Exhibit 6 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts40,000 = 30,000 + 10,000 Jan. 7 Merchandise Inven. 7,200 Cash –7,200 Ending Amounts 40,000 = 30,000 + 10,000 The company now has goods costing $7,200 for sale.
    68. 68. 2-54 Operating Activities Exhibit 6 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts40,000 = 30,000 + 10,000 Jan. 7 Merchandise Inven. 7,200 Cash –7,200 Ending Amounts 40,000 = 30,000 + 10,000 The firm spent cash to acquire the merchandise.
    69. 69. 2-54 Operating Activities Exhibit 6 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts40,000 = 30,000 + 10,000 Jan. 7 Merchandise Inven. 7,200 Cash –7,200 Ending Amounts 40,000 = 30,000 + 10,000 The firm spent cash to acquire the merchandise.
    70. 70. 2-54 Operating Activities Exhibit 6 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts40,000 = 30,000 + 10,000 Jan. 7 Merchandise Inven. 7,200 Cash –7,200 Ending Amounts 40,000 = 30,000 + 10,000 The firm spent cash to acquire the merchandise.
    71. 71. 2-55 Operating Activities Exhibit 6 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts40,000 = 30,000 + 10,000 Jan. 7 Merchandise Inven. 7,200 Cash –7,200 Ending Amounts 40,000 = 30,000 + 10,000 The ending amount of assets remains the same.
    72. 72. 2-55 Operating Activities Exhibit 6 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts40,000 = 30,000 + 10,000 Jan. 7 Merchandise Inven. 7,200 Cash –7,200 Ending Amounts 40,000 = 30,000 + 10,000 The ending amount of assets remains the same.
    73. 73. 2-55 Operating Activities Exhibit 6 OWNERS’ ASSETS = LIABILITIES + EQUITY Date Accounts Beginning Amounts40,000 = 30,000 + 10,000 Jan. 7 Merchandise Inven. 7,200 Cash –7,200 Ending Amounts 40,000 = 30,000 + 10,000 The ending amount of assets remains the same.
    74. 74. 2-56 Operating Activities •In January, Favorite Cookie Company sells 380 boxes of cookies (cost to purchase = $6,080) to the store for $11,400, receiving cash.
    75. 75. 2-57 Operating Activities Exhibit 9 ASSETS = LIABILITIES + OWNERS’ EQUITY Other Contributed Retained Cash Date Accounts Assets Capital Earnings Beginning Amounts 1,800 +38,200 30,000 10,000 1/31 Cash 11,400 Sales Revenue 11,400 1/31Cost of Goods Sold –6,080 Merchan. Inventory –6,080 Ending Amounts 13,200 +32,120 = 30,000 + 10,000 + 5,320
    76. 76. 2-57 Operating Activities Exhibit 9 ASSETS = LIABILITIES + OWNERS’ EQUITY Other Contributed Retained Cash Date Accounts Assets Capital Earnings Beginning Amounts 1,800 +38,200 30,000 10,000 1/31 Cash 11,400 Sales Revenue 11,400 1/31Cost of Goods Sold –6,080 Merchan. Inventory boxes of cookies at $30 Sold 380 –6,080 Ending Amounts 13,200 +32,120 = 30,000 + 10,000 + 5,320 each. Cash increases $11,400.
    77. 77. 2-58 Operating Activities Exhibit 9 ASSETS = LIABILITIES + OWNERS’ EQUITY Other Contributed Retained Cash Date Accounts Assets Capital Earnings Beginning Amounts 1,800 +38,200 30,000 10,000 1/31 Cash 11,400 Sales Revenue 11,400 1/31Cost of Goods Sold –6,080 Revenue from sales increases Merchan. Inventory –6,080 Ending Amounts 13,200 +32,120 = 30,000 + 10,000 + 3,220 Retained Earnings by $11,400.
    78. 78. 2-58 Operating Activities Exhibit 9 ASSETS = LIABILITIES + OWNERS’ EQUITY Other Contributed Retained Cash Date Accounts Assets Capital Earnings Beginning Amounts 1,800 +38,200 30,000 10,000 1/31 Cash 11,400 Sales Revenue 11,400 1/31Cost of Goods Sold –6,080 Revenue from sales increases Merchan. Inventory –6,080 Ending Amounts 13,200 +32,120 = 30,000 + 10,000 + 3,220 Retained Earnings by $11,400.
    79. 79. 2-59 Operating Activities Exhibit 9 ASSETS = LIABILITIES + OWNERS’ EQUITY Other Contributed Retained Cash Date Accounts Assets Capital Earnings Beginning A second entry is required to Amounts 1,800 +38,200 30,000 10,000 1/31 Cash record the cost of $6,080… 11,400 Sales Revenue 11,400 1/31Cost of Goods Sold –6,080 Merchan. Inventory –6,080 Ending Amounts 13,200 +32,120 = 30,000 + 10,000 + 5,320
    80. 80. 2-59 Operating Activities Exhibit 9 ASSETS = LIABILITIES + OWNERS’ EQUITY Other Contributed Retained Cash Date Accounts Assets Capital Earnings Beginning A second entry is required to Amounts 1,800 +38,200 30,000 10,000 1/31 Cash record the cost of $6,080… 11,400 Sales Revenue 11,400 1/31Cost of Goods Sold –6,080 Merchan. Inventory –6,080 Ending Amounts 13,200 +32,120 = 30,000 + 10,000 + 5,320
    81. 81. 2-60 Operating Activities Exhibit 9 ASSETS = LIABILITIES + OWNERS’ EQUITY Other Contributed Retained Cash Date Accounts Assets Capital Earnings Beginning Amounts 1,800 +38,200 30,000 the …and a reduction in 10,000 1/31 Cash amount of inventory. 11,400 Sales Revenue 11,400 1/31Cost of Goods Sold –6,080 Merchan. Inventory –6,080 Ending Amounts 13,200 +32,120 = 30,000 + 10,000 + 5,320
    82. 82. 2-60 Operating Activities Exhibit 9 ASSETS = LIABILITIES + OWNERS’ EQUITY Other Contributed Retained Cash Date Accounts Assets Capital Earnings Beginning Amounts 1,800 +38,200 30,000 the …and a reduction in 10,000 1/31 Cash amount of inventory. 11,400 Sales Revenue 11,400 1/31Cost of Goods Sold –6,080 Merchan. Inventory –6,080 Ending Amounts 13,200 +32,120 = 30,000 + 10,000 + 5,320
    83. 83. 2-61 Operating Activities Exhibit 9 ASSETS = LIABILITIES + OWNERS’ EQUITY Other Contributed Retained Cash Date Accounts Assets Capital Earnings Beginning Amounts 1,800 +38,200 30,000 10,000 1/31 Cash 11,400 Sales Revenue 11,400 1/31Cost of Goods Sold –6,080 Merchan. Inventory –6,080 Ending Amounts 13,200 +32,120 = 30,000 + 10,000 + 5,320
    84. 84. 2-62 Operating Activities Cost of Goods Sold identifies the cost to the company of goods transferred to customers.
    85. 85. 2-63 Operating Activities On January 6, paid $300 for supplies used during January. ASSETS = LIABILITIES + OWNERS’ EQUITY Exhibit 10 Other Contributed Retained Cash Date Accounts Assets Capital Earnings
    86. 86. 2-63 Operating Activities On January 6, paid $300 for supplies used during January. ASSETS = LIABILITIES + OWNERS’ EQUITY Exhibit 10 Other Contributed Retained Cash Date Accounts Assets Capital Earnings 1/6 Supplies Expense –300
    87. 87. 2-63 Operating Activities On January 6, paid $300 for supplies used during January. ASSETS = LIABILITIES + OWNERS’ EQUITY Exhibit 10 Other Contributed Retained Cash Date Accounts Assets Capital Earnings 1/6 Supplies Expense –300 Cash –300
    88. 88. 2-64 Operating Activities NOTICE •Revenues increase owners’ equity (Retained Earnings) •Expenses decrease owners’ equity (Retained Earnings)
    89. 89. 2-65 Operating Activities On January 8, paid $600 for rent for January. ASSETS = LIABILITIES + OWNERS’ EQUITY Exhibit 10 Other Contributed Retained Cash Date Accounts Assets Capital Earnings
    90. 90. 2-65 Operating Activities On January 8, paid $600 for rent for January. ASSETS = LIABILITIES + OWNERS’ EQUITY Exhibit 10 Other Contributed Retained Cash Date Accounts Assets Capital Earnings 1/8 Rent Expense –600
    91. 91. 2-65 Operating Activities On January 8, paid $600 for rent for January. ASSETS = LIABILITIES + OWNERS’ EQUITY Exhibit 10 Other Contributed Retained Cash Date Accounts Assets Capital Earnings 1/8 Rent Expense –600 Cash –600
    92. 92. 2-66 Operating Activities On January 31, paid $1,000 for wages for January. ASSETS = LIABILITIES + OWNERS’ EQUITY Exhibit 10 Other Contributed Retained Cash Date Accounts Assets Capital Earnings
    93. 93. 2-66 Operating Activities On January 31, paid $1,000 for wages for January. ASSETS = LIABILITIES + OWNERS’ EQUITY Exhibit 10 Other Contributed Retained Cash Date Accounts Assets Capital Earnings 1/31 Wages Expense –1,000
    94. 94. 2-66 Operating Activities On January 31, paid $1,000 for wages for January. ASSETS = LIABILITIES + OWNERS’ EQUITY Exhibit 10 Other Contributed Retained Cash Date Accounts Assets Capital Earnings 1/31 Wages Expense –1,000 Cash –1,000
    95. 95. 2-67 Operating Activities On January 31, paid $200 for utilities for January. ASSETS = LIABILITIES + OWNERS’ EQUITY Exhibit 10 Other Contributed Retained Cash Date Accounts Assets Capital Earnings
    96. 96. 2-67 Operating Activities On January 31, paid $200 for utilities for January. ASSETS = LIABILITIES + OWNERS’ EQUITY Exhibit 10 Other Contributed Retained Cash Date Accounts Assets Capital Earnings 1/31 Utilities Expense –200
    97. 97. 2-67 Operating Activities On January 31, paid $200 for utilities for January. ASSETS = LIABILITIES + OWNERS’ EQUITY Exhibit 10 Other Contributed Retained Cash Date Accounts Assets Capital Earnings 1/31 Utilities Expense –200 Cash –200
    98. 98. 2-67 Operating Activities On January 31, paid $200 for utilities for January. ASSETS = LIABILITIES + OWNERS’ EQUITY Exhibit 10 Other Contributed Retained Cash Date Accounts Assets Capital Earnings 1/31 Utilities Expense –200 Cash –200 Ending Amounts 11,100 +32,120 = 30,000 + 10,000 + 3,220
    99. 99. 2-68 Transaction Review for January • Received from Owners $10,000 • Received from Creditors $8,000 & $22,000 • Paid for Equipment $6,000; Paid for Van $25,000 • On January 5, Favorite Cookie Company paid $6,000 for office equipment. • On January 6, the company bought a delivery van for $25,000. It paid $3,000 in cash and financed the • remaining $22,000 of the purchase price with a note payable. • On January 7, Favorite Cookie Company purchased cookies from the bakery at a cost of $7,200 • In January, Favorite Cookie Company sells 380 boxes of cookies to the store for $11,400, receiving cash.
    100. 100. 2-69 Transaction Review for January Transaction Review • In January, Favorite Cookie Company sells 380 boxes of cookies whose cost to purchase was $6,080 • A second entry in needed to record the cost and inventory impact • On January 6, paid $300 for supplies used during January. • On January 8, paid $600 for rent for January • On January 31, paid $1,000 for wages for January. • On January 31, paid $200 for utilities for January.
    101. 101. 2-70 Exhibit 12 January 31 Account Balance Assets: Cash 11,100 Merchandise inventory 1,120 Equipment 31,000 Liabilities: Notes Payable 30,000 Owners’ Equity: Contributed Capital 10,000 Sales Revenue 11,400 Cost of Goods Sold (6,080) Wages Expense (1,000) Rent Expense (600) Supplies Expense (300) Utilities Expense (200)
    102. 102. 2-70 Exhibit 12 January 31 Account Balance Assets: Cash 11,100 Merchandise inventory $7,200 – $6,080 1,120 Equipment 31,000 Liabilities: Notes Payable 30,000 Owners’ Equity: Contributed Capital 10,000 Sales Revenue 11,400 Cost of Goods Sold (6,080) Wages Expense (1,000) Rent Expense (600) Supplies Expense (300) Utilities Expense (200)
    103. 103. 2-70 Exhibit 12 January 31 Account Balance Assets: Cash 11,100 Merchandise inventory 1,120 Equipment 31,000 Liabilities: Notes Payable 30,000 Owners’ Equity: Contributed Capital 10,000 Sales Revenue 11,400 Cost of Goods Sold (6,080) Wages Expense (1,000) Rent Expense (600) Supplies Expense (300) Utilities Expense (200)
    104. 104. 2-71 Exhibit 12 January 31 Account Balance Assets: Cash 11,100 Merchandise inventory 1,120 Equipment $6,000 + $25,000 31,000 Liabilities: Notes Payable 30,000 Owners’ Equity: Contributed Capital 10,000 Sales Revenue 11,400 Cost of Goods Sold (6,080) Wages Expense (1,000) Rent Expense (600) Supplies Expense (300) Utilities Expense (200)
    105. 105. 2-72 Exhibit 12 January 31 Account Balance Assets: Cash 11,100 Merchandise inventory 1,120 Equipment 31,000 Liabilities: Notes Payable$8,000 + $22,000 30,000 Owners’ Equity: Contributed Capital 10,000 Sales Revenue 11,400 Cost of Goods Sold (6,080) Wages Expense (1,000) Rent Expense (600) Supplies Expense (300) Utilities Expense (200)
    106. 106. 2-73 …So what comes next…after knowing the balances, we need to create the Financial Statements: 1.Income Statement 2.Balance Sheet 3.Statement of Cash Flows
    107. 107. 2-74 What are 3 accounts in the Income Statement?
    108. 108. 2-75 Income Statement Example Accounts • Sales Revenue • Cost of Goods Sold • Interest Expense • Wages Expense • Net Income
    109. 109. 2-76 The income statement reports revenues and expenses for a fiscal period as a means of determining how well a company has performed in creating profit for its owners. Bottom line is NET INCOME!
    110. 110. 2-77 Favorite Cookie Company Exhibit 13 Income Statement For the Month Ended January 31, 2007 Sales revenue $11,400 Cost of goods sold (6,080) Wages expense (1,000) Rent expense (600) Supplies expense (300) Utilities expense (200) Net income $ 3,220 Account January 31 Balance Owners’ Equity: Contributed Capital 10,000 Sales Revenue 11,400 Cost of Goods Sold (6,080) Wages Expense (1,000) Rent Expense (600) Supplies Expense (300) Utilities Expense (200)
    111. 111. 2-77 Favorite Cookie Company Exhibit 13 Income Statement For the Month Ended January 31, 2007 Sales revenue $11,400 Cost of goods sold (6,080) Wages expense (1,000) Rent expense (600) Supplies expense (300) Utilities expense (200) Net income $ 3,220 Account January 31 Balance Owners’ Equity: Contributed Capital 10,000 Sales Revenue 11,400 Cost of Goods Sold (6,080) Wages Expense (1,000) Rent Expense (600) Supplies Expense (300) Utilities Expense (200)
    112. 112. 2-78 Favorite Cookie Company Income Statement For the Month Ended January 31, 2007 Sales revenue $11,400 Cost of goods sold (6,080) Wages expense (1,000) Rent expense (600) Supplies expense (300) Utilities expense (200) Net income $ 3,220
    113. 113. 2-78 Favorite Cookie Company Income Statement For the Month Ended January 31, 2007 Sales revenue $11,400 Cost of goods sold (6,080) Wages expense A fiscal period is (1,000) Rent expense the time period (600) Supplies expense (300) Utilities expense for which a (200) Net income company reports $ 3,220 its financial activities.
    114. 114. 2-78 Favorite Cookie Company Income Statement For the Month Ended January 31, 2007 Sales revenue $11,400 Cost of goods sold (6,080) Wages expense (1,000) Rent expense (600) Supplies expense (300) Utilities expense (200) Net income $ 3,220
    115. 115. 2-79 Favorite Cookie Company Income Statement For the Month Ended January 31, 2007 Sales revenue $11,400 Cost of goods sold (6,080) Wages expense (1,000) Rent expense (600) Supplies expense (300) Utilities expense (200) Net income $ 3,220 Net income is the amount of profit earned by a business during a fiscal period.
    116. 116. 2-80 A balance sheet identifies a company’s assets and claims to those assets by creditors and owners at a specific date.
    117. 117. 2-81 Exhibit 14 Favorite Cookie Company Balance Sheet At January 31, 2007 Assets: Cash $11,100 Merchandise inventory 1,120 Equipment 31,000 Total assets $43,220 Liabilities and Owners’ Equity Notes payable $30,000 Contributed capital 10,000 Retained earnings 3,220 Total liabilities and owners’ equity $43,220
    118. 118. 2-81 Exhibit 14 Favorite Cookie Company Balance Sheet At January 31, 2007 Assets: Cash $11,100 Merchandise inventory 1,120 Equipment 31,000 Total assets $43,220 Liabilities and Owners’ Equity Notes payable $30,000 Contributed capital 10,000 equal Retained earnings 3,220 Total liabilities and owners’ equity $43,220
    119. 119. 2-82 Exhibit 14 Favorite Cookie Company Balance Sheet At January 31, 2007 Assets: Cash $11,100 Merchandise inventory 1,120 Equipment 31,000 Total assets $43,220 Liabilities and Owners’ Equity Notes payable $30,000 Contributed capital 10,000 Retained earnings 3,220 Total liabilities and owners’ equity $43,220 note
    120. 120. 2-83 The statement of cash flows reports events that affected a company’s cash account during a fiscal period.
    121. 121. 2-84 The information used for preparing the statement of cash flows comes from what account? In what statement is that account found?
    122. 122. 2-85 Cash Account found on the Balance Sheet. Look at all Inflows and Outflows of CASH ONLY!
    123. 123. 2-86 Exhibit 15 Favorite Cookie Company Statement of Cash Flows For the Month Ended January 31, 2007 Operating Activities Received from customers $11,400 Paid for merchandise (7,200) Paid for wages (1,000) Paid for rent (600) Paid for supplies (300) Paid for utilities (200) Net cash flow from operating activities $ 2,100 Investing Activities Paid for equipment (31,000) Net cash flow from investing activities ($ 31,000)
    124. 124. 2-86 Exhibit 15 Favorite Cookie Company Statement of Cash Flows For the Month Ended January 31, 2007 Operating Activities Received from customers $11,400 Paid for merchandise (7,200) Paid for wages (1,000) Paid for rent (600) Paid for supplies (300) Paid for utilities (200) Net cash flow from operating activities $ 2,100 Investing Activities Paid for equipment (31,000) Net cash flow from investing activities ($ 31,000) Continued
    125. 125. 2-87 Carried forward $(28,900) Financing Activities Received from creditors $30,000 Received from owners 10,000 Net cash flow from financing activities 40,000 Net cash flow for January 11,100 Cash balance, January 1 0 Cash balance, January 31 $ 11,100
    126. 126. 2-87 Carried forward $(28,900) Financing Activities Received from creditors $30,000 Received from owners 10,000 Net cash flow from financing activities 40,000 Net cash flow for January 11,100 Cash balance, January 1 0 Cash balance, January 31 $ 11,100 The statement of cash flows is useful for identifying how much cash a company has, where that cash came from, and how the company used its cash during a fiscal period.
    127. 127. 2-88 Exercise 2-17 Listed below and on the next slide are typical accounts or titles that appear on financial statements. For each item, identify the financial statement(s) on which it appears. Wages expense Cost of goods sold Sales revenue Merchandise inventory Net income Retained earnings
    128. 128. 2-88 Exercise 2-17 Listed below and on the next slide are typical accounts or titles that appear on financial statements. For each item, identify the financial statement(s) on which it appears. Wages expense Income statement Cost of goods sold Sales revenue Merchandise inventory Net income Retained earnings
    129. 129. 2-88 Exercise 2-17 Listed below and on the next slide are typical accounts or titles that appear on financial statements. For each item, identify the financial statement(s) on which it appears. Wages expense Income statement Cost of goods sold Income statement Sales revenue Merchandise inventory Net income Retained earnings
    130. 130. 2-88 Exercise 2-17 Listed below and on the next slide are typical accounts or titles that appear on financial statements. For each item, identify the financial statement(s) on which it appears. Wages expense Income statement Cost of goods sold Income statement Sales revenue Income statement Merchandise inventory Net income Retained earnings
    131. 131. 2-88 Exercise 2-17 Listed below and on the next slide are typical accounts or titles that appear on financial statements. For each item, identify the financial statement(s) on which it appears. Wages expense Income statement Cost of goods sold Income statement Sales revenue Income statement Merchandise inventory Balance sheet Net income Retained earnings
    132. 132. 2-88 Exercise 2-17 Listed below and on the next slide are typical accounts or titles that appear on financial statements. For each item, identify the financial statement(s) on which it appears. Wages expense Income statement Cost of goods sold Income statement Sales revenue Income statement Merchandise inventory Balance sheet Net income Income statement Retained earnings
    133. 133. 2-88 Exercise 2-17 Listed below and on the next slide are typical accounts or titles that appear on financial statements. For each item, identify the financial statement(s) on which it appears. Wages expense Income statement Cost of goods sold Income statement Sales revenue Income statement Merchandise inventory Balance sheet Continued Net income Income statement Retained earnings Balance sheet
    134. 134. 2-89 Exercise 2-17 Contributed capital Rent expense Cash Notes payable
    135. 135. 2-89 Exercise 2-17 Contributed capital Balance sheet Rent expense Cash Notes payable
    136. 136. 2-89 Exercise 2-17 Contributed capital Balance sheet Rent expense Income statement Cash Notes payable
    137. 137. 2-89 Exercise 2-17 Contributed capital Balance sheet Rent expense Income statement Cash Balance sheet Notes payable
    138. 138. 2-89 Exercise 2-17 Contributed capital Balance sheet Rent expense Income statement Cash Balance sheet Notes payable Balance sheet
    139. 139. 2-90 Reporting the Transformation Process Assets $40,000 Profit +11,400 Revenues $11,400 -8,180 Expenses -8,180 $43,220 Net Income $ 3,220 Liabilities $30,000 Owners’ Equity: Contributed Capital 10,000 Retained Earnings 3,220 $43,220 Exhibit 16
    140. 140. 2-90 Reporting the Transformation Process Assets $40,000 Profit +11,400 Revenues $11,400 -8,180 Expenses -8,180 1 $43,220 Net Income $ 3,220 Liabilities $30,000 Owners’ Equity: Contributed Capital 10,000 Retained Earnings 3,220 $43,220 Exhibit 16
    141. 141. 2-90 Reporting the Transformation Process Assets $40,000 Profit 2 +11,400 Revenues $11,400 -8,180 Expenses -8,180 1 $43,220 Net Income $ 3,220 Liabilities $30,000 Owners’ Equity: Contributed Capital 10,000 Retained Earnings 3,220 $43,220 Exhibit 16
    142. 142. 2-90 Reporting the Transformation Process Assets $40,000 Profit 2 +11,400 Revenues $11,400 -8,180 Expenses -8,180 3 1 $43,220 Net Income $ 3,220 Liabilities $30,000 Owners’ Equity: Contributed Capital 10,000 Retained Earnings 3,220 $43,220 Exhibit 16
    143. 143. 2-90 Reporting the Transformation Process Assets $40,000 Profit 2 +11,400 Revenues $11,400 -8,180 Expenses -8,180 3 1 $43,220 Net Income $ 3,220 Liabilities $30,000 4 Owners’ Equity: Contributed Capital 10,000 Retained Earnings 3,220 $43,220 Exhibit 16
    144. 144. 2-90 Reporting the Transformation Process Assets $40,000 Profit 2 +11,400 Revenues $11,400 -8,180 Expenses -8,180 3 1 $43,220 Net Income $ 3,220 Liabilities $30,000 4 Owners’ Equity: Contributed Capital 10,000 5 Retained Earnings 3,220 $43,220 Exhibit 16
    145. 145. 2-91 Financial Analysis Return on Assets (ROA) is the ratio of net income to total assets.
    146. 146. 2-91 Financial Analysis Return on Assets (ROA) is the ratio of net income to total assets. Net Income ROA = Total Assets
    147. 147. 2-92 Financial Analysis For Favorite Cookie Company at January 31, 2007, ROA is 7.5% Net Income ROA = Total Assets
    148. 148. 2-92 Financial Analysis For Favorite Cookie Company at January 31, 2007, ROA is 7.5% Net Income ROA = Total Assets
    149. 149. 2-93 Financial Analysis For Favorite Cookie Company at January 31, 2007, ROA is 7.5% $3,220 Net Income ROA = Total Assets
    150. 150. 2-93 Financial Analysis For Favorite Cookie Company at January 31, 2007, ROA is 7.5% $3,220 Net Income ROA = Total Assets $43,220
    151. 151. 2-93 Financial Analysis For Favorite Cookie Company at January 31, 2007, ROA is 7.5% $3,220 Net Income ROA = = 7.5% Total Assets $43,220
    152. 152. 2-94 Financial Analysis Return on Investment (ROI) is the ratio of net income to investment.
    153. 153. 2-94 Financial Analysis Return on Investment (ROI) is the ratio of net income to investment. Net Income ROI = Investment
    154. 154. 2-95 Financial Analysis For Favorite Cookie Company at January 31, 2007, ROI is 32% Net Income Net Income ROI = Total Assets
    155. 155. 2-95 Financial Analysis For Favorite Cookie Company at January 31, 2007, ROI is 32% Net Income Net Income ROI = Total Assets Investment
    156. 156. 2-95 Financial Analysis For Favorite Cookie Company at January 31, 2007, ROI is 32% Net Income Net Income ROI = = 32% Total Assets Investment
    157. 157. 2-96 Financial Analysis For Favorite Cookie Company at January 31, 2007, ROI is 32% $3,220 Net Income ROI = Total Assets
    158. 158. 2-96 Financial Analysis For Favorite Cookie Company at January 31, 2007, ROI is 32% $3,220 Net Income ROI = Total Assets $10,000
    159. 159. 2-96 Financial Analysis For Favorite Cookie Company at January 31, 2007, ROI is 32% $3,220 Net Income ROI = = 32% Total Assets $10,000
    160. 160. 2-97 Financial Analysis Return on Sales (ROS) is the ratio of net income to sales.
    161. 161. 2-97 Financial Analysis Return on Sales (ROS) is the ratio of net income to sales. Net Income ROS = Sales
    162. 162. 2-98 Financial Analysis For Favorite Cookie Company at January 31, 2007, ROS is 28% Net Income ROS= Sales
    163. 163. 2-98 Financial Analysis For Favorite Cookie Company at January 31, 2007, ROS is 28% Net Income ROS= Sales Sales
    164. 164. 2-98 Financial Analysis For Favorite Cookie Company at January 31, 2007, ROS is 28% Net Income ROS= = 28% Sales Sales
    165. 165. 2-99 Financial Analysis For Favorite Cookie Company at January 31, 2007, ROS is 28% Net Income $3,220 ROS= Sales
    166. 166. 2-99 Financial Analysis For Favorite Cookie Company at January 31, 2007, ROS is 28% Net Income $3,220 ROS= Sales $11,400
    167. 167. 2-99 Financial Analysis For Favorite Cookie Company at January 31, 2007, ROS is 28% Net Income $3,220 ROS= = 28% Sales $11,400
    168. 168. 2-100 CHAPTER 2 THE END – See you on Thursday! Don’t forget assignments due: 1. Homework #1

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