BAF3M Accounting. Chapter 8 The Work Sheet and Financial Statements

Transcription

1 BAF3M Accounting Chapter 8 The Work Sheet and Financial Statements

2 Up til now Accounting clerks usually only do the work up to the Trial Balance Chapters 8 and 9 will advance your ability to prepare and interpret financial statements work normally completed by accountants, not accounting clerks

3 8.1 The Six Column Worksheet The 6 column worksheet is to help you get ready for the 8 column worksheet in Ch 9 Control Accounts for A/R and A/P On the worksheet and the formal financial statements, debtor and creditor names are left off otherwise these documents could be ridiculously loooooooooooooonnnnnnnnnnnnnngggggggggg Ex. The phone company s B/S could be as long as the phone book itself all the listed names would be their receivables More on this in Ch 12

4 8.1 The Six Column Worksheet As with most accounting procedures, there is a detailed list of steps to follow to complete this step properly These steps are listed in detail on pages of your textbook The forthcoming slides contain a condensed version of these steps

5 8.1 The Six Column Worksheet Step 1: Complete the heading, including careful description of the fiscal period

6 8.1 The Six Column Worksheet Step 2: Enter, total, and rule the trial balance amounts

7 8.1 The Six Column Worksheet Step 3a: Copy the balance sheet amounts to the balance sheet columns

8 8.1 The Six Column Worksheet Step 3b: Copy the income statement amounts to the income stmt. columns

9 8.1 The Six Column Worksheet Total Revenue Total Expenses Net Income (the balancing figure) Step 4a: Total and rule the last four columns

10 8.1 The Six Column Worksheet Step 4c: Record the net income in the outer two of the last four columns

11 8.1 The Six Column Worksheet Step 4d: Total and rule the work sheet

12 8.1 The Six Column Worksheet Changes shown in red. Total Expenses are now higher than Total Revenue. Net Loss Situation: Assume Wages and Bank Loan were $40,000 higher

13 8.1 The Six Column Worksheet The amount of the net loss is placed in the inner two of the last four columns

14 8.1 The Six Column Worksheet Rule and total the work sheet for a loss situation

15 8.1 The Six Column Worksheet The worksheet and financial statements It s the duty of the accounting dept to produce top notch financial statements for owners The completed worksheet contains all the info needed to create the I/S and B/S Read the examples on pgs

16 8.2 How Accountants use Income Statements Comparing Income Statements When comparing income statements for 2 consecutive years the following calculations are made: 1) dollar amount of the increase / decrease from the first year to the second 2) Percentage amount of the increase / decrease from the first year to the second

17 Example 8.2 How Accountants use Income Statements ITEM YEAR 1 YEAR 2 Car Expense $ $ Dollar Increase / Decrease = $9 110 Percentage Increase / Decrease = x 100 = 18.13% Hint: use the old number as the divisor, not the new one

18 8.2 How Accountants use Income Statements TREND ANALYSIS Shows financial data over a number of consecutive periods Year 1 Year 2 Year 3 Year 4 Year 5 Sales $ $ $ $ $ Sales % 100% 109.1% 136.4% 81.8% 190.9% Each of the %ages is calculated by putting the sales figure for the year over the sales figure for Year 1 and multiplying it by 100

19 8.2 How Accountants use Income Statements Common-size Income Statements Used to accurately compare companies of differing sizes Ex. Comparing A-1 Chinese Restaurant to Applebee s The companies can be made to look the same size by converting the amounts to percentages

20 WHAT A COMMON SIZE INCOME STATEMENT LOOKS LIKE COMPANY A COMPANY B Revenue Sales $ % $ % Expenses Automotive Expenses $ % $ % Bank Interest Expense % Rent Expenses % % Wages Expenses % % Other Expenses % % Total Expenses $ % $ % Net Income $ % $ % x 100 = 17%

21 8.3 How Accountants Use Balance Sheets Account-form v. Report-form Info is side-by-side, horizontal Info is one-above-the-other, vertical

22 8.3 How Accountants Use Balance Sheets Classified Balance Sheet An improved way to present B/S info Basically it organizes the accounts that go on a balance sheet under 4 headings: Current Assets will be used up within a year Fixed Assets will last longer than a year Current Liabilities will be paid off in a year Long-term Liabilities paid off in longer than a year

23 8.3 How Accountants Use Balance Sheets An Outlined example of a Classified Balance Sheet is on p. 270, Fig Working Capital the difference between the current assets and current liabilities of a business More working capital is better

24 Comparative Statements Trend Analysis 8.3 How Accountants Use Balance Sheets Common-size Statements Very similar to the I/S examples in section 8.2 When comparing 2 income statements, we described everything as a percentage of sales For the balance sheet we will express everything as a Percentage of Total Assets (divide everything by total assets)

25 8.4 Accountability GAAP The Consistency Principle Requires that a business must use the same accounting methods and procedures from period to period.

26 8.4 Accountability GAAP The Materiality Principle Requires accountants to follow generally accepted accounting principles except when to do so would be expensive or difficult, and where it makes no real difference if the rules are ignored.

27 WHAT THIS MEANS EXAMPLE Suppose an invoicing error for $50 was discovered by a company that just finished it s financial statements. Assume also that the error affected the net income of approximately $ shown on the financial statements. In this case, no effort would be made to correct the error as the $50 is not significant in relation to $

28 8.4 Accountability GAAP The Full Disclosure Principle All information needed for a full understanding of the company s financial affairs must be included in the financial statements.

29 WHAT THIS MEANS Some items that are necessary for an understanding of the company s financial affairs may not affect the ledger accounts directly. These would be included in the form of accompanying notes. Things included in the notes may include: tax disputes, company takeovers, outstanding lawsuits