Welcome to Part B of Prepare financial statements. In part A, you learned how to prepare the

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Sabrina Anthony
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Slides 19-21 (2m:35s) Slide 1 (repeated from Part a) Welcome to Part B of Prepare financial statements.

In this part, you will learn how to prepare the statement of stockholders equity and the balance sheet, and I also will show you the completed statement of cash flows.

1 Slides (2m:35s) Slide 1 (repeated from Part a) Welcome to Part B of Prepare financial statements. In part A, you learned how to prepare the income statement, both the single-step income statement and the multi-step income statement. In this part, you will learn how to prepare the statement of stockholders equity and the balance sheet, and I also will show you the completed statement of cash flows. Slide 19 Welcome to Part B of Prepare financial statements. In part A, you learned how to prepare the income statement, both the single-step income statement and the multi-step income statement. In this part, you will learn how to prepare the statement of stockholders equity and the balance sheet, and I also will show you the completed statement of cash flows.

2 Slide 20 Now you re ready to prepare the statement of stockholders equity. Please take out a scratch piece of paper and use the adjusted account balances on the following page and the net income from the income statement you just barely prepared to prepare a statement of stockholders equity, which is also known as the statement of shareholder equity. Here s a formatting hint. Label it with the company name, specify that it s the statement of stockholders equity, and also specify the accounting period. Once again this will be from March 1st X1 to December 31st X1, because we just barely started the company in March 1st. In future periods it ll be for a year ended December 31st. The first column will be your common stock, the beginning balance we had no common stock issued in outstanding, then we issued some common stock, and we are going to include the number of shares in one column and the dollar amount related to those shares in another column, to arrive at your ending balance. Retained earnings is a little tricky because the beginning balance will come from the adjusted trial balance, however, that retained earnings will not yet have been adjusted for net income less dividends. It s here on the statement of retained earnings that you ll arrive at the ending adjusted retained earnings that will go on the balance sheet. In this case we started with no retained earnings from the past because it was a brand new company. We are going to add the net income from the income statement, deduct the dividends to arrive at the ending adjusted retained earnings which will go on the balance sheet.

Slide 21 The accounts to be used from the adjusted trial balance are: capital stock and dividends. You ll also include net income from the statement of retained earnings.

3 Slide 21 The accounts to be used from the adjusted trial balance are: capital stock and dividends. You ll also include net income from the statement of retained earnings. You will not show all this detail on the statement of retained earnings, you ll just show the net income being added. Slides (3m:30s) Slide 22 Now you re ready for the balance sheet. Please take out a scratch piece of paper and use the adjusted account balances on the following page and the ending retained earnings balances from the statement of stockholders equity (specifically the statement of retained earnings) to prepare a classified balance sheet as of 12/31/X1. Here s a formatting hint. Label it with the company name, specify that it s a balance sheet, but the date will be AS OF the end of the accounting period December 31st, X1. Under assets you ll put the current assets together total them up, non-current assets total them up; add the two to get total assets. Total assets should then be equal to total liabilities and stockholders equity. Under liabilities to be classified you d have to classify them into the current liabilities and the noncurrent liabilities total them up. Under equity you classify by the contributing capital and the

earned capital, total them up to get total stockholders equity. Total liabilities plus total stockholders equity will give you total liabilities and stockholders equity which will equal total assets.

4 earned capital, total them up to get total stockholders equity. Total liabilities plus total stockholders equity will give you total liabilities and stockholders equity which will equal total assets. Slide 23 I ve already put in the classifications we did before so you could quickly and easily find your current assets, contra assets, noncurrent assets, current liabilities, and non-current liability, as well as your equity account. The one that s not on this is list is the ending retained earnings and you have to remember that because the retained earnings was zero so I didn t include it on this list, but we now have an ending retained earnings that you will need on the balance sheet. Good Luck.

5 Slides (combined for visual purposes)

6 Slide 24 (for discussion purposes) Here s the asset side of the balance sheet. As you can see we took all of our current assets added them up to get total current assets. One thing that s a little unusual is we have the gross receivables and then we had to deduct its contra asset called allowance for doubtful accounts to arrive at net receivables. But if you add all these numbers up straight down you are going to get to $182,190. Then we moved on to our non-current assets, once again we had to take equipment minus its contra asset for accumulated to depreciation to get its book value, same thing for buildings to get its book value, and our total property, plant and equipment is $203,700. Take our current assets, add to that our non-current assets and we have $385,890. Now if our liabilities and equity don t add up to that number then we ve done something wrong. Let s go on to page 2.

7 Slide 25 (for discussion purposes) All of our current liabilities added up $60,134. Long term debt $160,000 so our total liabilities are $220,134. Here s the common stock of retained earnings from the statement of shareholders equity to get total stockholders equity $165,756. If you had your total liabilities and your total stockholders equity you get total liabilities and stockholders equity of $385,890. Looking back on the assets [see slide 25 above] $385,890. Our balance sheet balances which it should have because our adjusted trial balance balanced. It appears we ve done that properly.

8 Slide 26 Let s step back and look at that balance sheet from the most fundamental level which is the balance sheet equation which I introduced in the very first video of this course. Assets equal liabilities plus equity. Total assets-$385,890 equals liabilities-$220,134 and equity-$165,756. Those added together equals $385,890, and we are in balance. YIPPEE!

9 Slides (1m:38s) Slides In this course I do not have the time to teach you how to prepare the statement of cash flows, that will have to come in a later course, the key point is the statement of cash flows explains why cash changed from the beginning of the period to the end of the period, and it is explained by the operating cash flows, the investing cash outflows, and the financing cash inflows. All those added up explain the change in cash during the year, since we started with no cash the change in cash actually winds up being our ending cash. In future periods we will have a beginning cash balance and the change for the year will be added or deducted from that. One thing you should notice is that accrual basis net income said we earned $71,696, but the actual cash brought in

10 from those operations was $106,510. Meaning accrual basis net income is not the same as your cash inflows from operating activities. Just so you can see that a little bit better, I ve broken it out into page 1 that s your operating activities cash flows, And page 2 which is your investing and financing cash flows. Slide 30 That s how you do it, that s how you prepare the financial statements. I hope the process made sense. I hope you ve actually taken some time to try to prepare those on your own because the best way to learn this stuff is to try it out. So what I would recommend in this point and time is to go back to that adjusted trial balance and see if you can come up with the same financial statements, except maybe the statement of cash flows, which we haven t taught you how to do yet. Good Luck on the quiz.

TRANSACTIONS ANALYSIS EXAMPLE. Maxwell Partners Medical Diagnostic Services report the following information for 2011, their first year of operations:

TRANSACTIONS ANALYSIS EXAMPLE. Maxwell Partners Medical Diagnostic Services report the following information for 2011, their first year of operations: TRANSACTIONS ANALYSIS EXAMPLE Maxwell Partners Medical Diagnostic Services report the following information for 2011, their first year of operations: 1. Billings to clients for services provided: $350,000