Accounting e book

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This E-BOOK contains basics of accounting like INCOME STATEMENT,BALANCE SHEETS etc.

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Accounting e book

  1. 1. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM Introduction to Accounting E-book
  2. 2. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM This is the E-Book on Accounting To get other E-Books for FREE Visit: https://www.educorporatebridge.com/freebies3.php For More FREE Resources Finance News, Articles, Interview Tips etc https://www.educorporatebridge.com/blog For Online Finance Courses For any other enquiry / information Email – support@cbacademy.in https://www.educoporatebridge.com https://www.educorporatebridge.com/freebies3.php Corporate Bridge Blog
  3. 3. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM Discussion topics  Introduction to accounting  Background  Business Cycle  Use of Financial Statements  Income Statement  Introduction  Accrual basis of accounting  Cash basis of accounting  Revenue recognition principle  Matching principle of costs  Balance Sheet  Introduction  Accounting Equation  Debit and Credit  Assets / Liabilities  Key Questions  Cash flow Statement  Introduction  Calculating cash flow from operations, investing and finance
  4. 4. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM Introduction to Accounting
  5. 5. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM Starting a Business: some background  Kartik want to start a new business. Kartik sees the need for “Movers and Packers” business in Mumbai. He has researched this idea and has prepared a business plan that documents the viability of his new business  Kartik met his lawyer friend to discuss the form of business he should use. Given his situation, they concluded that a corporation will be best form. Kartik names his company as FastTrack Inc?  What is a corporation?  What are other form of business types?  Kartik is a hard worker and a smart man, but admits he is not comfortable with matters of accounting  Kartik asks his banker to recommend a professional analyst who is skilled in explaining business accounting to someone without an accounting background  Kartik wants to understand financial statements and wants to keep on top of his new business  Kartik asks you the following questions  What is business cycle?  Why do we use financial statements at all?
  6. 6. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM What is a Business Cycle?  Simple Business Cycle for FastTrack Inc Kartik Infuses Capital Uses the money to purchase trucks, inventory, pay labor and admin costs Provides Service “Movers and Packers” Receives Money from Clients, Earns Profit/Loss Cash Outflow Cash Inflow Shareholder of the firm  Kartik receives money from the clients – Profit or Loss  Kartik has following options  Kartik can reinvest the profit made in the business to expand his business or  Can simply keep the money!
  7. 7. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM Why do we use Financial Statements? FastTrack Movers & Packers Transactions  Based on Kartik’s business plan, you now understand that there will likely be thousands of transactions each year  Kartik seems puzzled by the term transaction, so you gives him five examples of transactions that FastTrack Inc will need to record:  Kartik will start his business by putting some of his own personal money into it. In effect, he is buying shares of FastTrack Inc common stock  FastTrack Inc will need to buy a few transport vehicles - truck  The business will begin earning fees and billing clients for relocating their parcels from one place to another  The business will be collecting the fees that were earned  The business will incur expenses in operating the business, such as a salary for Kartik, labors, expenses associated with packaging material, delivery vehicle, advertising, etc  With thousands of such transactions in a given year, Kartik is being advised to make an entry of these transactions in an accounting software on a daily basis Why Accounting?  Understanding of company’s profitability, assets and cash position  Generate sales invoices and accounting entries  Prepare statements for customers with no additional work  Can you now explain Kartik, the content and purpose of the three main financial statements – Income Statement, Balance Sheet and Cash Flow statement
  8. 8. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM Income Statement
  9. 9. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM Income Statement – Jargons introduced!  The order of deduction of cost is as follows:  Cost of products sold  Sales, general and administrative costs  Interest Expenses  Tax Expenses  Lets get back to our FastTrack Inc example Revenues result from the entity’s operating activities (selling merchandise, selling services) Costs and expenses are incurred in generating revenues and operating the entity The income statement shows the profit for the period of time under consideration FastTrack Movers & Packers Inc. Sales $ xxx Cost of goods sold $ xxx Gross Profit $ xxx Selling,general and admin. expenses $ xxx Income from operations $ xxx Interest expense $ xxx Income before taxes $ xxx Net Income $ xxx Earnings per share $ xxx Income Statement, for year ended 31st December, 2007
  10. 10. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM FastTrack Movers & Packers Revenues  Even though Kartik’s clients won't be paying FastTrack Inc until January 15, the accrual basis of accounting requires that the $1,000 be recorded as December revenues, since that is when the delivery work actually took place  What is accrual basis of accounting?  What is cash method of accounting?  What is revenue recognition principle?  After expenses are matched with these revenues, the income statement for December will show just how profitable the company was in delivering parcels in December Case 1: Revenues If Kartik delivers 200 parcels in December for $5 per delivery, he has technically earned fees totaling $1,000 for that month. He sends invoices to his clients for these fees and his terms require that his clients must pay by January 15
  11. 11. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM FastTrack Movers & Packers Revenues  Receipts of $1,000 will not be considered to be January revenues, since the revenues were already reported as revenues in December when they were earned  This $1,000 of receipts will be recorded in January as a reduction in Accounts Receivable (In December Kartik had made an entry to Accounts Receivable and to Sales) – Don’t worry, we will explain you this in a bit!  The actual date of payment of $400 does not matter  What matters is when the work was done and when the corresponding expense was incurred  In our case work was done in December and hence, $400 expense is counted as a December expense even though the money will not be paid out until January 3  What is matching principle? Case 2: Revenues When Kartik receives the $1,000 worth of payment checks from his customers on January 15, he will make an accounting entry to show the money was received. Case 3: Expenses If Kartik hires some labor to help him with December deliveries and Kartik agrees to pay him $300 on January 3 and another $100 for pakaging and other supporting material; Total expenses of $400 expense for December deliveries
  12. 12. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM Income Statement - Expenses  What is the monthly interest expense that is shown for Kartik’s monthly income statement? Case 4: Expenses FastTrack Movers and Packers borrowed $20,000 from a bank to start his business on 1st December and the company agrees to pay 5% in interest, or $1,000. The interest is to be paid in a lump sum on December 1st of each year.
  13. 13. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM  FastTrack Income Statement as per the transaction discussed for the month of December, 2007 FastTrack Movers & Packers Inc. Sales $1,000 Cost of goods sold $400 Gross Profit $600 Selling,general and admin. Expenses 1 $30 Income from operations $570 Interest expense $83 Income before taxes $487 Income Tax @ 33% $161 Net Income $326 Note 1: SG&A expense is assumed to be $30 in December,2007 Income Statement, for month ended 31st December, 2007 Consolidating the Income Statement Accrual basis of accounting Concept of Matching Principle Concept of Matching Principle
  14. 14. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM Balance Sheet
  15. 15. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM Balance Sheet – Jargons reintroduced!  “Snapshot" of a company's financial position at a given moment  Reports the amount of a company's  Assets – Current assets/Long term assets  Liabilities – Current liabilities/Long term liabilities  Stockholders' (or owner's) equity – Common stock / Retained earnings Assets Liabilities & Stockholder's Equity Current assets Current Liabilities Cash $ xxx Short-term debt $ xxx Accounts Receivables $ xxx Accounts Payable $ xxx Inventory $ xxx Total current liabilities $ xxx Total current assets $ xxx Long term Liabilities Long term assets Long term debt $ xxx Plant and Equipment $ xxx Less:Acc depreciation ($ xxx) Stockholder's Equity Net PPE $ xxx Common Stock $ xxx Retained Earnings $ xxx Total Stockholder's Equity $ xxx Total Assets $ xxx Liabilities & Stockholder's Equity $ xxx FastTrack Movers & Packers Inc Balance Sheet, December 31st 2007 Assets Liability Shareholder’s Equity= +
  16. 16. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM Debits and Credits  Double Entry  Double entry is a 500-year-old accounting procedure  Double entry is a simple yet powerful concept and each and every transactions will result in an amount recorded into at least two of the accounts in the accounting system  Debit and Credit  Double entry system requires that the same dollar amount of the transaction must be entered on both the left side of one account, and on the right side of another account Assets Liability Shareholder’s Equity= +  Left means Debit!  Right means Credit!  Remember these simple tips:  Increase in assets – DEBIT  Decrease in assets – CREDIT  Increase in Liability & Equity – CREDIT  Decrease in Liability & Equity - DEBIT
  17. 17. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM  Shareholder’s Equity  Common Stock will be increased when the corporation issues shares of stock in exchange for cash (or some other asset)  Retained Earnings will increase when the corporation earns a profit and there will be a decrease when the corporation has a net loss  Core link between a company's balance sheet and income statement Balance Sheet Assets Liabilities & Stockholder's Equity Cash $20,000 Liabilities $0 Stockholder's Equity Common Stock $20,000 Total Assets $20,000 $20,000 FastTrack Movers & Packers Inc Balance Sheet, December 1st 2007 Cash from Kartik’s personal investment Increase in its stockholders' equity account Common Stock by $20,000 Case 5: Cash and Common Stock On December 1, 2007 Kartik starts his business FastTrack Movers and Packers. The first transaction that Kartik will record for his company is his personal investment of $20,000 in exchange for 5,000 shares of FastTrack Movers & Packers common stock. There are no revenues because no delivery fees were earned by the company, and there were no expenses.
  18. 18. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM  Debit and Credit Balance Sheet Assets Liabilities & Stockholder's Equity Cash $20,000 Liabilities $0 Stockholder's Equity Common Stock $20,000 Total Assets $20,000 $20,000 FastTrack Movers & Packers Inc Balance Sheet, December 1st 2007 Cash from Kartik’s personal investment Increase in its stockholders' equity account Common Stock by $20,000 Case 5: Cash and Common Stock On December 1, 2007 Kartik starts his business FastTrack Movers and Packers. The first transaction that Kartik will record for his company is his personal investment of $20,000 in exchange for 5,000 shares of FastTrack Movers & Packers common stock. There are no revenues because no delivery fees were earned by the company, and there were no expenses. Assets Liability Shareholder’s Equity= + Common Stock increases by $20,000 Cash increases by $20,000
  19. 19. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM  Kartik also needs to know that the reported amounts on his balance sheet for assets such as equipment, vehicles, and buildings are routinely reduced by depreciation  What is Depreciation  Matching principle?  Depreciation of land?  The accountant might match $2,800 ($14,000 5 years) of depreciation expense with each year's revenues for five years Balance Sheet Cash reduces to $6,000 and vehicle account increases to $14,000 No change in stockholder’s position Assets Liabilities & Stockholder's Equity Cash $6,000 Liabilities $0 Vehicle $14,000 Stockholder's Equity Common Stock $20,000 Total Assets $20,000 $20,000 FastTrack Movers & Packers Inc Balance Sheet, December 2nd 2007 Case 6: Purchase of Vehicle On December 2, FastTrack Movers & Packers purchases a truck for $14,000 by writing a check for $14,000. The two accounts involved are Cash and Vehicles (or Delivery Truck)
  20. 20. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM  Debit and Credit? Balance Sheet Cash reduces to $6,000 and vehicle account increases to $14,000 No change in stockholder’s position Assets Liabilities & Stockholder's Equity Cash $6,000 Liabilities $0 Vehicle $14,000 Stockholder's Equity Common Stock $20,000 Total Assets $20,000 $20,000 FastTrack Movers & Packers Inc Balance Sheet, December 2nd 2007 Case 6: Purchase of Vehicle On December 2, FastTrack Movers & Packers purchases a truck for $14,000 by writing a check for $14,000. The two accounts involved are Cash and Vehicles (or Delivery Truck) Assets Liability Shareholder’s Equity= + Cash decreases by $14,000 Vehicle asset increases by $14,000
  21. 21. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM Balance Sheet  Between Dec 1st & Dec 31st, $100 worth of insurance premium is "used up" or "expires"  The expired amount will be reported as Insurance Expense on December's income statement  The remaining portion of unexpired insurance premium is reported as Pre-paid Insurance  What is the remaining portion of Pre-paid insurance as of Dec 31st , 2007? Cash reduces further to $4,800 and Prepaid insurance account increases to $1,200 No change in stockholder’s position Assets Liabilities & Stockholder's Equity Cash $4,800 Liabilities $0 Prepaid Insurance $1,200 Stockholder's Equity Vehicle $14,000 Common Stock $20,000 Total Assets $20,000 $20,000 FastTrack Movers & Packers Inc Balance Sheet, December 2nd 2007 Case 7: Prepaid Expenses On December 2 when Kartik contacts an insurance agent regarding insurance coverage for the Truck just purchased. The agent informs him that $1,200 will provide insurance protection for the next one year. Kartik immediately writes a check for $1,200.
  22. 22. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM Balance Sheet  Debit and Credit? Cash reduces further to $4,800 and Prepaid insurance account increases to $1,200 No change in stockholder’s position Assets Liabilities & Stockholder's Equity Cash $4,800 Liabilities $0 Prepaid Insurance $1,200 Stockholder's Equity Vehicle $14,000 Common Stock $20,000 Total Assets $20,000 $20,000 FastTrack Movers & Packers Inc Balance Sheet, December 2nd 2007 Case 7: Prepaid Expenses On December 2 when Kartik contacts an insurance agent regarding insurance coverage for the Truck just purchased. The agent informs him that $1,200 will provide insurance protection for the next one year. Kartik immediately writes a check for $1,200. Assets Liability Shareholder’s Equity= + Cash decreases by $1,200 Prepaid insurance increases by $1,200
  23. 23. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM Assets Liabilities & Stockholder's Equity Cash $24,800 Liabilities $0 Prepaid Insurance $1,200 Long term debt $20,000 Stockholder's Equity Vehicle $14,000 Common Stock $20,000 Total Assets $40,000 Liabilities & Stockholder's Equity $40,000 FastTrack Movers & Packers Inc Balance Sheet, December 3rd 2007 Balance Sheet Cash increases by $20,000 (amount of debt raised from the bank) Long term debt raised from the bank Case 4 Revisited : Raising Debt FastTrack Movers and Packers borrowed $20,000 from a bank to start his business on 1st December and the company agrees to pay 5% in interest, or $1,000. The interest is to be paid in a lump sum on December 1st of each year.
  24. 24. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM  Debit and Credit Assets Liabilities & Stockholder's Equity Cash $24,800 Liabilities $0 Prepaid Insurance $1,200 Long term debt $20,000 Stockholder's Equity Vehicle $14,000 Common Stock $20,000 Total Assets $40,000 Liabilities & Stockholder's Equity $40,000 FastTrack Movers & Packers Inc Balance Sheet, December 3rd 2007 Balance Sheet Cash increases by $20,000 (amount of debt raised from the bank) Long term debt raised from the bank Case 4 Revisited : Raising Debt FastTrack Movers and Packers borrowed $20,000 from a bank to start his business on 1st December and the company agrees to pay 5% in interest, or $1,000. The interest is to be paid in a lump sum on December 1st of each year. Assets Liability Shareholder’s Equity= + Long term debt increases by $20,000 Cash increases by $20,000
  25. 25. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM  On 10th December, wholesale price of boxes has been risen by 20% & at today's price Kartik’s could purchase them for $1.20 each. What is the value of inventory shown on balance sheet?  What is Cost Principle?  Lets say that since the time Kartik bought inventory, the wholesale price of boxes has been cut by 40% and at today's price he could purchase them for $0.60 each. What is the value of inventory shown on the balance sheet in this case?  What is the principle of Conservatism? Assets Liabilities & Stockholder's Equity Cash $23,800 Liabilities $0 Prepaid Insurance $1,200 Long term debt $20,000 Inventory $1,000 Stockholder's Equity Common Stock $20,000 Vehicle $14,000 Total Assets $40,000 Liabilities & Stockholder's Equity $40,000 Balance Sheet, December 3rd 2007 FastTrack Movers & Packers Inc Balance Sheet Cash decreases by $1,000 and inventory increases by $1,000 No change Case 8: Inventory Kartik keeps an inventory of packing boxes not only to use it for his business but also earn additional revenues by carrying an inventory of packing boxes to sell. Let's say that FastTrack Movers and Packers purchased 1,000 boxes wholesale for $1.00 each.
  26. 26. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM Assets Liabilities & Stockholder's Equity Cash $23,800 Liabilities $0 Prepaid Insurance $1,200 Long term debt $20,000 Inventory $1,000 Stockholder's Equity Common Stock $20,000 Vehicle $14,000 Total Assets $40,000 Liabilities & Stockholder's Equity $40,000 Balance Sheet, December 3rd 2007 FastTrack Movers & Packers Inc Balance Sheet Cash decreases by $1,000 and inventory increases by $1,000 No change Case 8: Inventory Kartik keeps an inventory of packing boxes not only to use it for his business but also earn additional revenues by carrying an inventory of packing boxes to sell. Let's say that FastTrack Movers and Packers purchased 1,000 boxes wholesale for $1.00 each. Assets Liability Shareholder’s Equity= + Cash decreases by $1,000 Inventory asset increases by $1,000  Debit and Credit?
  27. 27. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM  Other liabilities  For the loan Kartik received from Bank (Notes Payable or Loan Payable), the interest on the loan he owes to his bank (Interest Payable)  Amount he owes to the supply store for items purchased on credit (Accounts Payable)  Wages he owes an employee but hasn't yet paid to him (Wages Payable) Assets Liabilities & Stockholder's Equity Cash $24,400 Liabilities $0 Prepaid Insurance $1,200 Unearned Revenue $600 Inventory $1,000 Long term debt $20,000 Stockholder's Equity Vehicle $14,000 Common Stock $20,000 Total Assets $40,600 Liabilities & Stockholder's Equity $40,600 Balance Sheet, December 4th 2007 FastTrack Movers & Packers Inc Balance Sheet Cash increases by $600 Liability increases by $600 Case 9: Unearned Revenues In addition to 200 parcels delivered by FastTrack Movers and Packers in December, they enters into an agreement with one of its customers stipulating that the customer prepays $600 in return for the delivery of 30 parcels every month for 6 months. Assume FastTrack Movers & Packers receives $600 payment on Dec 1,2007 for deliveries to be made between Dec 1,2007 and May 31,2007
  28. 28. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM  Debit and Credit Assets Liabilities & Stockholder's Equity Cash $24,400 Liabilities $0 Prepaid Insurance $1,200 Unearned Revenue $600 Inventory $1,000 Long term debt $20,000 Stockholder's Equity Vehicle $14,000 Common Stock $20,000 Total Assets $40,600 Liabilities & Stockholder's Equity $40,600 Balance Sheet, December 4th 2007 FastTrack Movers & Packers Inc Balance Sheet Cash increases by $600 Liability increases by $600 Case 9: Unearned Revenues In addition to 200 parcels delivered by FastTrack Movers and Packers in December, they enters into an agreement with one of its customers stipulating that the customer prepays $600 in return for the delivery of 30 parcels every month for 6 months. Assume FastTrack Movers & Packers receives $600 payment on Dec 1,2007 for deliveries to be made between Dec 1,2007 and May 31,2007 Assets Liability Shareholder’s Equity= + Unearned revenues increases by $600 Cash increases by $600
  29. 29. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM Missing links Accounts Receivables Accounts Payable Interest Payable The arrow indicates that net income affects retained earnings, which is a component of owners’ equity Assets = Liabilities + Owners' Equity Net income = Revenues - Expenses Balance Sheet Income Statement Case 1&2: Revenues If Kartik delivers 200 parcels in December for $5 per delivery, he has technically earned fees totaling $1,000 for that month. He sends invoices to his clients for these fees and his terms require that his clients must pay by January 15 Case 3: Expenses If Kartik hires some labor to help him with December deliveries and Kartik agrees to pay him $300 on January 3 and another $100 for pakaging and other supporting material; Total expenses of $400 expense for December deliveries Case 4: Expenses FastTrack Movers and Packers borrowed $20,000 from a bank to start his business on 1st December and the company agrees to pay 5% in interest, or $1,000. The interest is to be paid in a lump sum on December 1st of each year.
  30. 30. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM FastTrack Movers & Packers Inc. Sales $1,100 Cost of goods sold $400 Gross Profit $700 Selling,general and admin. Expenses 1 $30 Depreciation Expense $233 Insurance Expense $100 Income from operations $337 Interest expense $83 Income before taxes $254 Income Tax @ 33% $84 Net Income $170 Note 1: SG&A expense is assumed to be $30 in December,2007 Income Statement, for month ended 31st December, 2007 Consolidating all cases in Income Statement Case 1 (accrual) + Case 9 (earned revenue for December) Case 6, monthly depreciation = $2,800/12 = $233 Case 7, insurance premium worth $1,200/12 =$100 is utilized per month
  31. 31. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM Consolidated Balance Sheet Assets Liabilities & Stockholder's Equity Current assets Current Liabilities Cash $24,370 Unearned Revenue $500 Prepaid Insurance $1,100 Accounts Payable $400 Accounts Receivable $1,000 Interest Payable $83 Inventory $1,000 Income Tax Payable $84 Total Current Assets $27,470 Total Current liabilities $1,067 Vehicle $14,000 Long term debt $20,000 Accumulated depreciation $233 Net $13,767 Stockholder's Equity Common Stock $20,000 Retained Earnings $170 Total Assets $41,237 Liabilities & Stockholder's Equity $41,237 FastTrack Movers & Packers Inc Balance Sheet, December 31st 2007 Insurance premium worth $1,200/12 =$100 is utilized for December Cash receipt on January 15th, however, sales has been completed and booked as Accounts Receivables Net Income Flows through the Income Statement Revenues worth $100 earned in December, hence Unearned revenue of $600 adjusted for the earned revenues Unpaid expenses, classified as liabilities
  32. 32. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM Balance Sheet – Key questions?  Balance sheet shows the company’s assets worth?  YES?  NO?  Balance sheet does not provide us with the fair market value of the company?  Long-term assets reported at their cost minus amounts already sent to Income Statement as depreciation expense  The asset Land is not depreciated, so it will appear at its original cost even if the land is now worth one hundred times more than its cost  However, Short-term asset amounts are likely to be close to their market values, since they tend to "turn over" in relatively short periods of time  Is reputation cost captured in Balance Sheet – Brand, Logo etc?  Bill Gates  Nike  BMW
  33. 33. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM Cash Flow Statement Private and Confidential – Not for Circulation
  34. 34. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM Cash Flow Statement – Cash is the King!  Purpose of this cash flow statement is to identify sources & uses of cash during the year  Cash Flow is divided into three parts  Cash flow from operations: Include all the transactions and other events related to its earnings process  Cash flow from Investments: Include all the transactions involving acquiring and selling long-term investment, property, plant, and equipment  Cash Flow from Finance: Include all the transactions involved in obtaining and disbursing resources from and to owners and repaying the amounts borrowed Net Cash Cash flow from Operations Cash flow from Investing Cash flow from Finance + + Cash Inflows:  Generation of funds in normal operations Cash Outflows:  Expenditure of funds in normal operations Cash Inflows:  Debt issuance, common stock, preferred stock and other securities Cash Outflows:  Retirement of debt, common stock and preferred stock  Payment of cash dividend Cash Inflows:  Sale of plants and equipments  Liquidation of long term investments Cash Outflows:  Purchase of plants and equipments  Investments in long term investments
  35. 35. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM Calculating Cash flows Cases Cash Impact (yes/no) Cash Amount Classification Comments Case 1 No $0 Operation Revenues earned but not paid Case 2 No $0 Operation Revenues earned but not paid Case 3 No $0 Operation Expenses incurred but not paid Case 4 No $0 Operation Interest expense incurred but not paid Case 4 Yes $20,000 Finance FastTrack borrows from the bank Case 5 Yes $20,000 Finance Kartik infuses capital Case 6 Yes ($14,000) Investing Purchase of truck Case 7 Yes ($1,200) Operation Prepaid expenses Case 8 Yes ($1,000) Operation Purchase of Inventory (boxes) Case 9 Yes $600 Operation Customer Prepays Others Yes ($30) Operation SG&A expenses incurred and paid Cash flows $24,370 Cash flow from operations ($1,630) Cash flow from investing ($14,000) Cash flow from financing $40,000 Total Change in cash $24,370 End Cash Cash at the beginning Change in cash during the period = + Flows into the Balance Sheet as “Cash”
  36. 36. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM Thank You..!! Private and Confidential – Not for Circulation
  37. 37. IntroductiontoAccounting www.educorporatebridge.com All Rights Reserved. Corporate Bridge TM For FREE Resources Corporate Bridge Blog Finance News, Articles, Interview Tips etc https://www.educorporatebridge.com/blog For Online Finance Courses For any other enquiry / information Email – support@cbacademy.in https://www.educoporatebridge.com https://www.educorporatebridge.com/freebies3.php

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