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Financial Statements

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Page 1: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Financial Statements

Page 2: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Financial Statements

Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Page 3: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Income Statement

Summary of an entity’s revenues, expenses, and net income or net loss for a specific period

Revenues - Expenses Net Income: Revenues > Expenses Net Loss: Expenses > Revenues

Page 4: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Net income is carried to the

retained earnings statement

Income Statement

Page 5: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Statement of Owner’s Equity

Summary of changes in an entity’s owner’s equity during a specific period

Beginning owner’s equity+ Owner’s investments+ Net income- Net loss- Owner’s withdrawalsEnding owner’s equity

Page 6: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Retained Earnings Statement

from the income statement

to the balance sheet

Page 7: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Balance Sheet

Reports the entity’s assets, liabilities, and owner’s equity as of a specific date

Assets = Liabilities + Owner’s Equity

Page 8: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

This amount is compared to the net cash flows on the statement of cash flows

From the retained earnings statement

Balance Sheet

Page 9: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Statement of Cash Flows

Reports cash receipts and cash payments during a specific period

Page 10: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

This amount should match Cash on the balance sheet.

Statement of Cash Flows

Page 11: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Debits & Credits

Page 12: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

12

Double Entry System

Record dual effects of each transaction

Each transaction affects at least two accounts

Each transaction is recorded with at least One debit One credit

Total debits must equal total credits

Page 13: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

13

Account Account NameName

(Left (Left Side) Side) DebitDebit

(Right (Right Side) Side)

CreditCredit

Simple tool for analyzing and determining the balance in a given account

T-Account

Page 14: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

14

Debit Credit

Assets

+

-

Rules of Debit and Credit

Liabilities Equity= +Debit Credit - +

Debit Credit - +

Page 15: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

15

Rules of Debit and Credit

Owner’s EquityDebit Credit - +

Revenues

- +

Debit Credit

Owner’s Capital

Debit Credit - +

Owner’s Withdrawa

lsDebit Credit +

-Expenses

Debit Credit +

-

Page 16: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

16

Liabilities EquityAssets = +

Normal Balances

Debit Credit+ -

Debit Credit- +- +

Debit Credit- +- +

NormalBalance

NormalBalance

NormalBalance

Page 17: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

17

++

Owner’s Equity

Normal Balances

Debit Credit- +

NormalBalance

Owner’s Equity

Owner’s Equity

Debit Credit+ -

NormalBalance

Owner’s Withdraw

als

Owner’s Withdraw

als

__Debit Credit- +

NormalBalance

RevenuesRevenues__

ExpensesExpenses

Debit Credit+ -

NormalBalance

Page 18: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

18

General Journal Entry

Journal Page 1

Date Description Debit Credit

Jul 1 Cash 45,000

Lange, Capital 45,000

Investment from owner

Accounts AffectedAccounts AffectedAccounts AffectedAccounts Affected

Dollar amount of Dollar amount of debits and creditsdebits and creditsDollar amount of Dollar amount of debits and creditsdebits and credits

Explanation of Explanation of transactiontransaction

Explanation of Explanation of transactiontransaction

Transaction Transaction DateDate

Transaction Transaction DateDate

Page 19: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

On November 1, 2007, Chris Clark organizes a corporation that will be

known as NetSolutions.

Page 20: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

a. Chris Clark deposits $25,000 in a bank account in the name of NetSolutions in return for shares of stock in the corporation.

Nov 1 Cash 25,000.00

Stockholder’s Equity 25,000.00

Page 21: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

b. NetSolutions exchanged $20,000 for land.

Land 20,000.00

Cash 20,000.00

Page 22: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

c. During the month, NetSolutions purchased supplies for $1,350 and agreed to pay the supplier in the near future (on account).

Supplies 1,350.00

Accounts Payable 1,350.00

Page 23: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

dd. NetSolutions provided services to customers, earning fees of $7,500 and received the amount in cash.

Cash 7,500.00

Fees Revenue 7,500.00

Page 24: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

e. NetSolutions paid the following expenses: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275.

Wages Expense 2,125.00

Cash 3,650.00

Rent Expense 800.00

Utilities Expense 450.00

Miscellaneous Expense 275.00

Page 25: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

f. NetSolutions paid $950 to creditors during the month.

Accounts Payable 950.00

Cash 950.00

Page 26: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

g. At the end of the month, the cost of supplies on hand is $550, so $800 of supplies were used.

Supplies Expense 800.00

Supplies 800.00

Page 27: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

h. At the end of the month, NetSolutions pays $2,000 to stockholder (Chris Clark) as dividends.

Dividends 2,000.00

Cash 2,000.00

Page 28: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

28

Posting

Posting – copying amounts from the journal to the ledger

Periodically, journal entries are posted to ledger accounts to determine balances in each account

Page 29: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

29

Trial Balance

List of all accounts with their balances

Page 30: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Trial Balance

1-30

NetSolutions

Trial Balance

For the Month Ended November 30, 2007

     

Cash 5,900.00  

Supplies 550.00  

Land 20,000.00  

Accounts Payable   400.00

Capital Stock   25,000.00

Dividends 2,000.00  

Fees Earned   7,500.00

Wages Expense 2,125.00  

Rent Expense 800.00  

Supplies Expense 800.00  

Utilities Expense 450.00  

Miscellaneous Expense 275.00  

     

Totals $ 32,900.00 $ 32,900.00      

Page 31: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Net income is carried to the

retained earnings

statement

Income Statement

Page 32: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Retained Earnings Statement

from the income statement

to the balance sheet

Page 33: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

This amount is compared to the net cash flows on the statement of cash flows

From the retained earnings statement

Balance Sheet

Page 34: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

This amount should match Cash on the balance sheet.

Statement of Cash Flows

Page 35: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

More Transactions

Page 36: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Dec. 1 NetSolutions paid rent for December, $800. The company from which NetSolutions is renting its store space requires the payment of rent on the first of each month, rather than at the end of the month.

Page 37: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Dec 1 Rent Expense 52 800 00 Cash 11 800 00

Paid rent for

December.

Page 38: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

NetSolutions received an offer from a local retailer to rent (for $120 per month) the land purchased on November 5. The retailer plans to use the land as a parking lot for its employees and customers. NetSolutions agreed to rent the land to the retailer for three months, with the rent payable in advance.

Page 39: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

1Cash 11 360 00

Unearned Rent 23 360 00

Received advance

payment for

three months’

rent on land.

Page 40: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Dec. 4 NetSolutions purchased office equipment on account from Executive Supply Co. for $1,800.

4 Office Equipment 181 800 00

Accounts Payable 21 1 800 00

Purchased office

equipment on

account.

Page 41: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Dec. 6NetSolutions paid $180 for a newspaper advertisement.

6 Miscellaneous Expense 59 180 00

Cash 11 180 00

Paid for newspaper

ad.

Page 42: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Dec. 11NetSolutions paid creditors $400.

11 Accounts Payable 21 400 00

Cash 11 400 00

Paid creditors on

account.

Page 43: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Dec. 13 NetSolutions paid a receptionist and part-time assistant $950 for two weeks’ wages.

13 Wages Expense 51 950 00

Cash 11 950 00

Paid two weeks’

wages.

Page 44: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Dec. 16 NetSolutions received $3,100 from fees earned for the first half of December.

16 Cash 113 100 00

Fees Earned 41 3 100 00

Received fees

from customers.

Page 45: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Dec. 16 Fees earned on account totaled $1,750 for the first half of December.

16 Accounts Receivable 12 1 750 00

Fees Earned 41 1 750 00

Recorded fees

earned on

account.

Page 46: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Dec. 20 NetSolutions paid $900 to Executive Supply Co. on the $1,800 debt owed from the December 4 transaction.

20 Accounts Payable 21 900 00

Cash 11 900 00

Paid part of

amount owed to

Executive Supply

Co.

Page 47: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Dec. 21 NetSolutions received $650 from customers in payment of their accounts.

21 Cash 11 650 00

Accounts Receivable 12 650 00

Received fees

from customers

on account.

Page 48: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Dec. 23 NetSolutions paid $1,450 for supplies.

23 Supplies 14 1 450 00

Cash 11 1 450 00Purchased

supplies.

Page 49: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Dec. 27 NetSolutions paid the receptionist and part-time assistant $1,200 for two weeks’ wages.

27 Wages Expense 51 1 200 00

Cash 11 1 200 00

Paid two weeks’

wages.

Page 50: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Dec. 31 NetSolutions paid $310 for telephone charges for the month.

31 Utilities Expense 54 310 00

Cash 11 310 00

Paid telephone

charges.

Page 51: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Dec. 31 NetSolutions paid $225 for electric usage for the month.

31 Utilities Expense 54 225 00

Cash 11 225 00

Paid for electric

usage.

Page 52: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Dec. 31 NetSolutions received $2,870 from fees earned for the second half of December.

31 Cash 11 2 870 00

Fees Earned 41 2 870 00

Received fees

from customers.

Page 53: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Dec. 31 NetSolutions earned $1,120 on account for the second half of December.

31 Accounts Receivable 12 1 120 00

Fees Earned 41 1 120 00

Recorded fees

earned on

account.

Page 54: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Dec. 31 NetSolutions paid dividends of $2,000 to stockholders.

31 Dividends 33 2 000 00

Cash 11 2 000 00

Paid dividends to

stockholders.

Page 55: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

Trial Balance

Page 56: Financial Statements. Income statement Statement of owner’s equity Balance sheet Statement of cash flows