Professional Documents
Culture Documents
CH 01 Lecture
CH 01 Lecture
CH 01 Lecture
Financing
-creditors
-owners
Investing
-Long term Assets
Operating
Primary operations of the company
-Revenue
-Expenses
Revenues (R)
Sales
Service revenue
Expenses (E)
Salaries expense
Rent expense
Practice
Rent expense $4,500
Wage expense 2,650
Painting supplies expense 1,950
Painting revenue 12,000
Supplies used 200
Insurance expense 700
SE = CS + RE
STOCKHOLDERS’ EQUITY
Practice
At the beginning of the year (January 1), Bennett Drilling has $10,000 of common stock
outstanding and retained earnings of $7,200. During the year, Bennett reports net income of
$7,500 and pays dividends of $2,200. In addition, Bennett issues additional common stock for
$7,000. (What is ending Common Stock, ending Retained Earnings and ending Stockholders’
Equity?)
Bennett Drilling
Statement of Stockholders’ Equity
For the year ended December 31, 20XC
Common Stock Retained Earnings Total Stockholders’ Equity
Beginning balance $ $ $
- dividends
Ending Balance $ $ $
Assets (A)
-Owned by the company as a result of past transactions.
- Economic resources expected to provide future benefits to the company
-Examples: Cash, Equipment, Buildings
Liabilities (L)
-Owed by the company as a result of past transactions.
-Future claims on economic resources (either assets or services) of the company.
-Examples: Notes payable, Salaries payable
A = L + SE
CS + RE
Assets = Liabilities + Stockholders’ Equity
Economic resources = Sources of financing
What you have = Where it came from
or
A - L = SE
Net assets = Owners’ equity or Owners’ claim to resources
Equipment $21,000
Accounts payable 2,100
Common stock 10,000
Land 13,000
Supplies 100
Long-term debt 15,000
Cash 5,000
Retained earnings ?
Determine Retained earnings, Total assets, Total Liabilities and Total Stockholders’ Equity by
preparing the balance sheet at the end of the year.
Smith Construction
Balance Sheet
At December 31, 20XC
Assets Liabilities
$ $
Total liabilities $
Stockholders' Equity
$
OPERATING ACTIVITIES
INVESTING ACTIVITIES
FINANCING ACTIVITIES
Combining the three categories of net cash inflows and outflows indicates the change in CASH
during the period.
Identify as (O, I, F)
Cash received from sale of products to customers $35,000
Cash received from the bank for long-term loan 40,000
Cash paid to purchase factory equipment (45,000)
Cash paid to merchandise suppliers (11,000)
Cash received from the sale of an idle warehouse 12,000
Cash paid to workers (23,000)
Cash paid for advertisement (3,000)
Cash received for providing services to customers 25,000
Cash paid for dividends to stockholders (5,000)
Beginning cash balance was $4,000. Prepare the Statement of Cash Flows for Lincoln Trade.
Lincoln Trade
Statement of Cash Flows
For the year ending December 31, 20XC
Cash Flows from Operating Activities
Cash inflows:
$
Cash outflows:
R BCS BRE A = L + SE
-E +issuance +NI CS+RE
NI -DIV
ECS ERE
Practice:
A company receives cash for services performed. How does this transaction affect the financial
statements?
The Notes
There are three basic types of notes.
1. Descriptions of accounting rules applied in the financial statements.
2. Details about line items in the statements.
3. Disclosures about items not listed in the statements.
Rule enforcers (and authority to make the rules)Securities and Exchange Commission (SEC)
Primary objective: provide useful information to investors and creditors in making decisions.
Qualitative Characteristics
Decision Usefulness
Relevance
-predictive value
-confirmatory (feedback) value
-materiality (significance)
Cost Constraint
-Cost-benefit
Industry practice
UNDERLYING ASSUMPTIONS
Economic Entity assumption (“Separate Entity”)
Monetary Unit assumption—currently we don’t take inflation into consideration
Periodicity assumption
Going Concern assumption