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LLH9e Chapter 01
LLH9e Chapter 01
LLH9e Chapter 01
Financial Accounting
9e
Libby • Libby • Hodge
1-1
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Understanding the Business
Stockholders Creditors
1-2
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Exhibit 1.1
The Accounting System and Decision Makers
Accounting System
1-3
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Business Activities
Financing
Activities
Operating Investing
Activities Activities
1-4
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The Four Basic Financial Statements
1-5
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Balance Sheet
Stockholders’ Equity
Common Stock
Retained Earnings
1-6
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Exhibit 1.2
Balance Sheet
EXPLANATION
LE-NATURE’S INC. Name of the entity
Balance Sheet Title of the statement
At December 31, 2012 Specific date of the statement
(in millions of dollars) Unit of measure
A = L + SE Stockholders’
Assets Liabilities
Equity
1-8
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Income Statement
Elements of the
Income
Revenues Statement
Cash and promises received
from delivery of goods and
services.
Examples: Expenses
Resources used to earn
Sales Revenue
Fee Revenue period’s revenues.
Interest Revenue Examples:
Rent Revenue
Cost of Goods Sold
Wages Expense
Rent Expense
Depreciation Expense
Insurance Expense
Repair Expense
Income Tax Expense
1-9
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Exhibit 1.3
Income Statement
EXPLANATION
LE-NATURE’S INC. Name of the entity
Income Statement Title of the statement
For the Year Ended December 31, 2012 Accounting period
(in millions of dollars) Unit of measure
Revenues
Sales revenue $275.1 Cash and promises received from sale of beverages
Expenses
Cost of goods sold 140.8 Cost to produce beverages sold
Selling, general, and administrative Other operating expenses (utilities, delivery costs, etc.)
expenses
77.1 Cost of using borrowed funds
Interest expense 17.2
Income before income taxes 40.0 Income taxes on period’s income before income taxes
Income tax expense 17.1 Revenues earned minus expenses incurred
Net income $ 22.9
1-10
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Statement of Stockholders’ Equity
1-11
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Exhibit 1.4
Statement of Stockholders’ Equity
EXPLANATION
LE-NATURE’S INC. Name of the entity
Statement of Stockholders’ Equity Title of the statement
For the Year Ended December 31, 2012 Accounting period
(in millions of dollars) Unit of measure
Common Retained
Stock Earnings
Balance December 31, 2011 $55.7 $43.1 Last period’s ending balances
Net income for 2012 22.9 Net income reported on the income statement
Dividends for 2012 (2.0) Dividends declared during the period
Balance December 31, 2012 $55.7 $64.0 Ending balances on the balance sheet
1-12
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Statement of Cash Flows
1-13
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Exhibit 1.5
Statement of Cash Flows
EXPLANATION
LE-NATURE’S INC. Name of the entity
Statement of Cash Flows (Summary) Title of the statement
For the Year Ended December 31, 2012 Accounting period
(in millions of dollars) Unit of measure
Cash flows from operating activities $ 87.5 Cash flows directly related to earning income
Cash flows from investing activities (125.5) Cash flows from purchase/sale of plant, equipment, & investments
Cash flows from financing activities 47.0 Cash flows from investors and creditors
Net increase (decrease) in cash 9.0 Change in cash during the period
Cash balance December 31, 2011 1.6 Last period’s cash on the balance sheet
Cash balance December 31, 2012 $ 10.6 Ending cash on the balance sheet
1-14
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Interpreting the Cash Flow Statement
FINANCIAL ANALYSIS
$$$
Analyze cash flow from operations to cash in
order to check the following:
1-15
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Exhibit 1.6
Relationships Among Le-Nature’s Statements
1-16
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Notes
1-17
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Exhibit 1.7
Summary of the Four Basic Financial Statements
Financial Statement Purpose Structure Examples of Content
Generally
Accepted
Accounting
Principles
(GAAP)
1-19
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History of Financial Reporting
1-20
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Generally Accepted Accounting Principles
1-21
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Generally Accepted Accounting Principles
1-22
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International Perspective
1-23
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Ethical Conduct
3. Choose the one you would like your family and friends to see
reported on your local news.
1-24
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Consequences of Unethical Behavior
What if the
After it was determined that the financial
numbers are
statements for Le-Nature’s Inc. were misleading,
wrong?
the consequences for the defendants were severe.
1-25
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Responsibility and the Need for Controls
1-26
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Supplement A: Types of Business Entities
Advantages of a Corporation:
ØLimited liability
ØContinuity of life
ØEase of transfer of ownership
ØOpportunity to raise large amounts of money
Disadvantage of a Corporation:
ØDouble taxation
1-27
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