All right welcome back everybody I know I assigned some homework in regards to transaction
analysis just to repeat a few things that I said last lecture transaction analysis is
that first skill I want to make sure you guys master.
So as we go through these I want you to be responsible and start to be able to ask yourselves
do I really understand this.
With accounting if at any point and you realize I don't know what he's doing I don't know
how to do this.
That's when you to come into office hours come into to tutoring folks at home email
me you can come into tutoring as well, but I want to make sure that you don't let that
go on.
You don't want to procrastinate with accounting, because everything builds on each other alright.
I kind of gave you some, but I gave them to you in a little different order didn't I,
I kind of gave you my own unique order.
What was the first one I gave you?
One-twelve well then let's do exercise one-twelve ok.
Ok exercise one-twelve Zelda began a new consulting firm on January the fifth the accounting equation
showed the following balances after each of the companies first five transactions analyze
the accounting equation for each transaction to describe each of the five transactions
so this is a little similar to the one that we did in class the other day isn't it?
The only difference here is now you kind of look at the balances and see what the change
was its not telling you the change it's actually telling you what the balance is ok.
Now the first one transaction A this is the very first transaction of the business isn't
it so everything was zero before that now cash is twenty thousand Zelda capital is twenty
thousand so obviously what happened here?
That's right Zelda invested twenty thousand dollars of her personal money into the business
very good that's A.
In B we see that cash went down by a thousand office supplies went up by fifteen hundred
and accounts payable went up by five hundred ok.
What happened there?
Look like she bought some office supplies she bought fifteen hundred dollars' worth
of office supplies by paying a thousand dollars cash and the remainder putting on account
or on credit so there's now a account five hundred dollar payable correct.
Good C cash went down by eight thousand and office furniture went up by eight thousand
looks like she used eight thousand dollars cash to buy some furniture for her office
is that correct?
D let's see what changed accounts receivable went up by three thousand and revenues went
up by three thousand looks like she provided services to her client on credit and they
will pay her later so she has an accounts receivable ok she will receive money in the
future.
And then lastly looks like cash went up by fifteen hundred oh no by five hundred I'm
sorry on transaction E cash went up by five hundred and revenues went up by five hundred.
So it looks like she provided services to a client and they paid her five hundred dollars
right there for the entire five hundred amount worth of services agreed?
Alright any questions on that one?
What was the next one I assigned one-ten ok good?
Exercise one-ten provide an example of each transaction that described the detailed effects
of separate cases now some of these have more than one, some of these have more than one.
So transaction A increases an asset and decreases an asset, what do you guys think?
There's one or more answer.
Ok a couple of examples that you gave me good you purchased supplies using cash or you purchased
equipment using cash ok very good.
Equipment or supplies would go up those are assets and cash which is an asset goes down.
Any others?
How about the collection of an accounts receivable let's say we have a accounts receivable for
five hundred dollars and they paid us cash well the receivable would go down that's an
asset, what would go up, cash that's an asset right?
One asset went down one asset went up ok so that's another an example.
Exercise one-ten uh B decreases an asset and decreases a liability what do you think?
Paid something like paid an accounts payable ok good.
Paid something that was already on the books that was payable ok good.
So the accounts payable went down and cash went down any other examples.
Paying a note payable really any sort of payable.
Paying taxes payable salaries payable any sort of liability the liability decreases
the cash which is an asset decreases.
D increases an asset and increases a liability what do you think?
Did I skip C sorry?
Let's go back to C. C decreases a liability and increases a liability this is kind of
a weird one.
You thought he was going to try to skip this one and get out of it right?
Decreases a liability and increases a liability ok what do you think?
oK and that sounds kind of weird, but let's say a company had a taxes payable right the
IRS started banging on their door saying you owe us taxes we have a taxes payable on the
books.
Well we don't have the cash right now so we go to our friendly bank and we get a loan.
So we can pay our taxes so taxes payable which is a liability goes down, notes payable which
is also liability goes up ok.
I'll give you another example I'll give you a couple of other examples.
My wife and I we just refinanced our home we're actually going through the process right
now so we have a mortgage payable at a certain interest rate and were going to pay that one
off with a new mortgage payable why would we do that?
Lower interest rate think we're moving from like four point two five we are getting rid
of that mortgage and were going to three and five eighths, three and five eighths for a
mortgage that's unbelievable ok.
So our old mortgage payable is going down our new mortgage payable is going up.
The advantage is decreased interest.
Now a company can have a mortgage payable as well can't they?
They can have a mortgage payable on their office building.
Or on a big piece of equipment that wouldn't be a mortgage but you see what I'm saying.
One more example, one more example lets ay my company has an accounts payable for two
thousand dollars to a vendor we have an accounts payable it's a liability for two thousand
dollars to a vendor well let's say we're having a little cash crunch right now.
So I go to that vendor and we worked with that vendor for a long time, and I say hey
we are having cash troubles I know we have an accounts payable to you I know we owe you
this money for two thousand dollars, but you know is there some way we can set up a payment
plan or something.
Will usually vendors are very happy if you go to them with, has anybody here have ever
done collections, no pray that you never have to it's not fun.
But when people owe you money if they're having trouble paying you, and they come to you and
they want to set up a payment plan most people are pretty nice about that.
Ok so our vendor might say thank you for doing that here is what we'll do let's get rid of
your accounts payable and let's set up a note payable.
And they might have us sign something and let's say let's have you pay it off over time
let's say a couple hundred dollars every month maybe for ten or eleven months or something
like that, and we're going to go ahead and charge you interest a little bit of interest
four percent and since it's going to be paid off over the next year we go ahead and sign
the note so that they feel a little bit better ok.
So you don't have a real old on their books a receivable ok.
You see what I'm saying?
So we got rid of our account payable and we set up a note payable with our vendor alright
so that's another example.
Ok good any others?
Ok now let's go to D increases an asset and increases a liability.
What do you think?
Ok good Kara is it Kara?
Ok good I'm getting better with names.
Alright we buy office supplies on credit office supplies which is an asset goes up accounts
payable goes up right.
What other ones there's some other ones to?
How about getting a loan?
Getting a loan from a bank, cash goes up notes payable goes up that's an asset that's a liability.
And actually buying anything on credit right furniture on credit or whatever ok good.
E decreases an asset and decreases equity, decreases an asset and decreases equity what
do you think?
There's a few on here too.
Ok withdrawing perhaps cash from the company ok.
Withdrawals goes up but equity goes down from our quiz that we had from our second lecture
second or third right?
The owner withdraws cash so cash which is an asset goes down and withdraws is one of
those things that decreases equity very good any other examples for this?
Another one would be paying an expense with cash.
Let's say I pay rent expense for the month ok.
Well rent expense isn't expenses one of those things that decreases equity?
OK so I pay that rent expense equity goes down and the cash that I used to pay that
rent expense also decreases right?
So that would be another example ok.
Alright F increases a liability and decreases equity.
You know I don't want to really concentrate on that one too much, because that's kind
of a chapter three kind of a chapter three question and we aren't in chapter three are
we?
Curiously did anyone come up with anything?
I put took out a loan and took cash for their pesonal use.
It's not bad, it's not bad ok not a bad one the only thing is that would probably be two
separate transactions you know cash in cash out what this is and I know it will bother
you for the rest of your life.
Is this would be like and this actually happens quite a bit actually you receive a bill, you
receive a bill and so you put it on the books as a liability you're not going to pay it
right now and you put the expense on your books it's called a accruing on the expense.
So don't really worry about that one I mean really don't really worry about it for now
when you're studying for your test don't sweat that one you can almost ignore it.
That will be chapter three, and G increases an asset and increases equity what do you
think?
Couple there too.
Cash into the- Well you're right but be more specific.
Ok increases an asset and increases equity so you perform a service for a customer and
think about revenue goes up so equity goes up right?
If they pay you in cash your asset in cash goes up right.
If we perform this on credit our accounts receivable goes up which is also an asset
isn't it so really preforming services for a client either way whether they pay us cash
right then or we book it as a receivable either way an asset increases and equity increases
ok good.
There's one other one.
If the owner bought something with their own money.
I have to think through that one see an owner bought something with their own money I have
to think through that one that's not the one I was thinking of ok, but I would have to
think through that one you mean they are going to get reimbursed by the company or something
like that.
That may not be I'm not just going to go down that road just yet and we'll get there and
what concept does that kind of violate.
Do you remember I was talking about we haven't talked about the business entity or have we?
We're going to talk about the business entity concept soon.
What the business entity concept is, is if I have a landscaping business I don't want
to I want to keep my landscaping business the check book, the records, and everything
separate from my personal life.
When I go to a client when they do something like that Anna is it Anna?
Oh getting better.
When they do something like that I'm like please don't make it a habit and you can reimburse
yourself but please don't be using your personal check book to buy things for the company or
worse yet don't be using the company check book to pay your daycare bill or whatever
let's keep those things separate business entity.
Marlin?
How is that different from making a personal withdrawal?
Well but see it's a good question how is that different for a withdrawal and that's how
well end up treating it as but what I tell my clients is take the money out of the company
book it to withdrawals and then once you have that money in your personal life then pay
that daycare bill, but when you write a check from the company checkbook to the daycare
ehhhh... then you've really got to set up in your accounting system your daycare as
a vendor, and it's just ehh right?
You don't want to do it too much or if a company or if an owner has two businesses keep those
businesses separately you know.
You just want to keep everything neat as you can not so much because you're anal retentive
but because a big part of accounting is that somebody can go in and understand what you've
done.
Oh the other one was for this one is the one I was trying to get to Anna was an owner invests
personal money into the company right?
Owner invest cash into the company cash goes up and what else goes up equity goes up from
our quiz right.
Ok good what's next exercise one-eleven?
Ok now this is really where the rubber hits the road as far as do we know how to analyze
these transactions?
Do we know how to analyze these transactions?
And I want you to become adept at this If we don't know how to do this if you're totally
confused then we need to get together get to office hours or whatever, because this
is a crucial part of accounting ok.
Ok I hope you used your work papers I think I showed you your work papers last class ok.
But lets go to exercise one-eleven Lena Gold began a professional practice on June one
and plans to prepare financial statements at the end of each month during June Gold
the owner completed these transactions.
Owner invested fifty thousand dollars cash in the company along with equipment that had
a ten thousand dollar market value.
Ok the first thing you want to ask is what accounts were affected, and then the next
question is did those accounts increase or decrease by how much.
In this situation cash went up by fifty thousand, equipment went up by ten thousand, and this
is one of those things that increases capital or equity isn't it?
It went up by sixty thousand.
Transaction B the company paid sixteen hundred dollars cash for rent of office space for
the month.
Now I want to change this a little bit but what happened is cash went down right?
Now I don't really like the way that they show this I'm going to zoom in, I really wish
they would have said expenses went up, because that's what they did expenses went up right?
Now this minus sign says yes eventually we're going to subtract expenses when calculating
equity, but expenses did not decrease expenses increased does that make sense?
Now what they do after each transaction and it gets a little tiresome so if you didn't
do it that's ok is then they recalculated the balances, and the main reason they did
that is they want to hammer home the idea that assets always equals liabilities plus
owner's equity at any point we can figure out the balances figure up our total assets
in this case our total assets is what fifty eight four hundred when I add those two together
and is that capital minus sixteen hundred expenses that's fifty eight four hundred too
isn't it?
Right there's no liabilities yet so at any point we can do that.
Transaction C the company purchased twelve thousands of additional equipment on credit
so what is affected well equipment goes up and accounts payable goes up and then we figure
out our new balances.
Any questions on transactions A through C please don't hesitate to ask if you've got
the question I guarantee there's other people do especially at home.
Ok transaction D the company completed work for a client and immediately collected the
two thousand dollars as earned.
Cash goes up and revenues go up by two thousand right?
Cash goes up and revenues goes up by two thousand.
Anybody has a question they got something different and they want to know why it's not
true?
You can tell me your wrong answer and I'll just shoot it down right there in front of
everyone on television ok no I'm kidding not really.
Cash goes up by two thousand and revenues goes up by two thousand ok.
E the company completed work for a client and sent a bill for seven thousand dollars
to be received within thirty days.
Ok our revenue goes up right our revenues go up, because this is the revenues recognition
principle even though we haven't been paid we recognize this as revenue because we've
completed the service the service has been delivered to the customer and accounts receivable
goes up that's another asset.
Figure our balances everything is good.
Ok transaction F the company purchased additional equipment for eight thousand cash, cash goes
down by eight thousand equipment goes up by eight thousand right?
Does that make sense?
See if I can get that a little larger I know this one's is kind of hard to see the answers.
Ok they refigured the balances assets still equal liabilities plus owner's equity.
Ok transaction G the company paid an assistant twenty four hundred dollars cash of wages
for the month.
Cash goes down once again I'm going to add this little plus sign here, because your expenses
actually go up don't they?
Yes those will be subtracted yes those will be subtracted when we figure out total equity
but your expenses go up don't they.
Refigure the new balances here's what we got.
H the company collected five thousand cash as partial payment owed by the client in transaction
E. So what happens here?
Revenue is not affected at all, all that happens is cash goes up by five thousand and our receivable
goes down by five thousand everything still hold?
Yes transaction I the company paid twelve thousand dollars cash to settle the liability
created in transaction C. Well our cash goes down by twelve thousand as does our accounts
payable by twelve thousand right?
Ok good everything still holds right?
Accounting equation is still valid.
And lastly the owner withdrew five hundred dollars cash from the company for personal
use.
What is affected there?
Cash goes down by five hundred this is kind of like that other situation our withdrawals
actually goes up ,but withdrawals will be subtracted when we figure out total equity
right?
So withdrawals goes up which decreases equity and assets go down because cash decreased.
And then they give us our final balance k see those.
Does the accounting equation hold after analyzing all these transactions?
Yup it does ok, any questions on that?
How did you guys do on that?
I want to make sure you know how to do that ok.
If you're like thinking I don't know what he just did or you were just getting tons
of them wrong ok that's alright recognize it now though and lets work on that together
shoot me an email for you folks at home come into tutoring office hour look through it
again and try it again.
The best way to assess and you're going to hear me over and over say this you're going
to her me say this this a lot during the semester the best way that you can assess if you know
this is to get a blank piece of paper out look at the question and see if you can do
it.
And you are like what else you can do a lot of student s get it all wrong and then they
look at the answer ok now I understand it now I can see what he did.
Well just looking at what I did and understanding what I did that doesn't mean you can do it.
Does that make sense?
I can watch Tiger Woods play golf and I can understand what he's doing, does that mean
I can go out and hit the ball like Tiger Woods?
No.
So don't just look over it and go does this make sense no get a blank piece of paper out
set it aside if you got a lot of them wrong set it aside may be tonight get a blank piece
of paper out don't look at the answer and see if you can do it ok.
Ok what I want to do now what was the I think I assigned exercise one eight and was that
the last one ok.
I'm going to hold off on that one for now might go through that at the end of lecture
but I want to make sure I get through the lecture ok.
So If we don't go over exercise one eight today we will go over it next lecture cool.
I want to talk about a very important subject today, and that is going to be the financial
statements.
I want to start introducing the four financial statements now do you remember on what I said
during the first lectures that?
Financial accounting is primarily satisfying the needs of external users we provide information
for those external users so they can make better decisions right.
Well these four financial statements take a look at the screen these four financial
statements are primarily what we prepare as far as information for those external users,
the income statement, the statement of owners' equity, the balance sheet, and the statement
for cash flows.
Now I want to point out something that I don't think the book makes as big a point that they
should these are the order that you provide these in ok.
So you have to prepare the income statement then the statement of equity then the balance
sheet and then the statement of cash flows one of the things that I guarantee you have
to do on the test is to prepare the first three financial statements.
And here's how I know a student doesn't know what they're doing when I tell them prepare
three financial statements and they start on the balance sheets no you can't do that
you have to do the income stamen and when you're done with the income statement you
do the statement of equity or owners' equity and then you do the balance sheet and the
reason is one flows into the next which flows into the next and we'll see that ok.
Let's take a look at the incomes statement first now the income statement sometimes it's
called the P&L which stands for profit and lost this one is intuitive the income statement
is very intuitive as a matter of fact we use a lot of terminology in our lives.
That kind of go back to this you ever hear somebody say hey well what's the bottom line
here what's the bottom line well they are kind of referring to a income statement.
The income statement as in this case it shows the revenues for a company less their expenses
and hopefully that equals a positive number and that will be an net income.
Revenues minus expenses equals a net income.
This example that you're looking on the screen it's a very simplified example isn't it there's
one revenue account and there's one expense account.
Now normally there's number of revenue accounts and you want to list those out and then do
a total revenue normally there's a number of expense account you want to list those
out do a total expense.
But this shows the revenues minus the expenses and resulting net income in this case.
Now can you ever have your expenses for a period of time be greater than your revenues
yes.
What's that called not a net income but a net loss.
Net loss right ok now I want to point out something that's really important see up here
in purple you've got the name of the company the name of the statement and then it's dated
for the month into December thirty one two thousand ten when you prepare a financial
statement I'm always going to ask you to prepare in good form or proper form.
So don't just give me this section here no I want you to prepare it in good form give
me the name of the company the name of the statement and I want you to date it properly
otherwise it's kind of worthless information what if you just got this information the
white part with the numbers.
What does that mean?
Did you ever find a phone number that you wrote on a post it note and you just wrote
the phone number and there's no name next to it and you're going this must have been
important but I sure wish I would have wrote the name next to it right.
Again we are providing information for external users.
You list the name of the company the name statement and you date it and you want to
date it properly ok.
Coming off the screen for a second Jake?
Jacob?
Jake? the Jakester?
preferably not do you have a cell phone?
Ok if I asked you what is your cell phone expense and you told me a hundred and fifty
dollars that is not real meaningful is it?
Because do you pay a hundred and fifty dollars a month for it?
Do you pay a hundred and fifty dollars a quarter for it if so that's a cheap that's an inexpensive
one right?
Do you pay a hundred and fifty dollars a week for it that would be real expensive.
No when you ask about expenses you can't just say my expense is this no you have to say
my expense for the month is this, or if I had a student who was working full time.
Allie if you had a full time job and I say what do you earn on your job and you say I
earn twelve thousand dollars.
Well I don't really know what that means do I is that twelve thousand dollars a year if
so that's not a real high paying job is it?
Is it twelve thousand dollars a quarter if so not bad?
Is it twelve thousand dollars a month do you earn twelve thousand a month Allie?
Is it twelve thousand dollars a day are you LeBron James where you earn twelve thousand
dollars a minute right.
You see what I'm saying?
When you talk about expenses or revenues you can't just say here's the amount you have
to say for the month or for the year ended or for the quarter ended or for the week ended
does that make sense?
So going back to the statement let's say that a student just dated it by putting December
thirty first two thousand ten I would lovingly take a point off on their test they need to
put for the month ended December thirty first of two thousand ten do you understand that?
That's the income statement or the profit and loss people know that one.
Any question?
Let's go to the next one.
The next one is what, what's the next one we prepare statement of equity and this is
the one that students and people don't really know.
The statement of equity shows the changes in owners' equity for the period of time.
This one is also prepared in good form isn't it the name of the company the name of the
statement and it's dated properly once again for the statement of equity for the month
ended December thirty one two thousand ten you want to date it the same way as the income
statement and this is real easy to see because you can see the beginning of the month balance
where's my pointer?
You can see the beginning of the month balance right here and you can see the ending of the
month balance right here.
Now one of the reasons I gave you that quiz in regards to how equity changes is because
it comes in useful when we do the statement of equity right.
We can see that equity decreased with withdrawals didn't it?
Withdrawals caused equity to decrease investments of owners by twenty thousand caused it to
increase.
Withdrawals caused it to decrease investments by owners caused it to increase.
Now you might say now wait a minute Krug I remember that quiz you told us revenues caused
equity to increase and expenses caused it to decrease right.
Wasn't that the quiz and then you have something causing it to increase that wasn't an answer
on the quiz net income ok.
I didn't lie to you what you weren't wrong here's the scoop yes all revenues cause equity
to increase yes all revenues cause equity to increase and yes all expenses cause equity
to decrease just like your quiz said, however, on the financial statements we don't take
the revenues over and add them we don't take the expenses over and subtract them we just
figure out the net number and take it over are you with me?
So looking back at the statement.
We just take that net number we don't add three thousand revenue and subtract eight
hundred expenses we just take the net number over to the statement of equity in this case
twenty two hundred dollars.
And since it's a net income it's added if it's a net loss we would subtract it right?
Does that make sense?
Now another thing here what I want to point out what is the beginning balance of capital
of December one of two thousand ten it's zero isn't it?
I don't want you to think that the normal beginning balance on your statement of equity
is zero the only reason it's zero in this instance is because this is the first month
of business you understand?
So it was zero at the beginning of the month it's zero it's like if you just open up a
checking account yes your first checking statement the beginning balance would be zero right?
But then if you had a checking statement Decembers ending balance of cash in your checking account
becomes January beginning balance right?
And it's probably not going to be zero is it?
Hopefully not.
So looking back at this statement of equity the beginning balance is zero only because
this is the first month of business the ending balance of capital is twenty one seven do
you see how we would do a statement of equity next month ended December thirty one two thousand
eleven the beginning balance would twenty one seven hundred ok.
So don't be thinking the beginning balance is always zero.
Alright these are the first two statements income statement, statement of equity do you
see why we have to prepare the income statement first?
Cause the net income flows into the statement of equity.
That's a great question let's go back to the screen, and let's just say in this instance
the owner invested twenty thousand dollars in the business, but then the owner also withdrew
five hundred dollars owner's withdrawals are not considered expenses that withdraws is
not an expense so the owner compensates themselves with withdrawals . Yes now again I'm telling
the very basics right now as we get a little further in accounting education I'll tell
you some exceptions but I don't like to go down those roads now for your purposes yes
when a owner wants to compensate themselves they do that through withdrawals and a withdrawals
is not an expense that's why it doesn't show up on the income statement.
What about salary expense.
That was what I was trying to avoid and more on that thanks a lot buddy.
For your purposes I want to say no for your purposes I want to say no at this level of
your accounting education when the owner has money it's a withdrawal now down the road
you can probably tell yes there are some instances there are some but for your purposes can we
just say the owner compensates themselves properly through withdraws not through salary
expense ok.
When you ask these questions I can tell you're thinking about these things and that's good.
Alright we did the income statement we did the statement of owner's equity what's the
next one we prepare?
Balance sheet now what is the ending balance of capital on the statement of owner's equity
twenty seven right.
There it is right there right, where is my pointer.
There's that ending balance capital that flowed from the statement of equity didn't it?
So do you see why we have to do the balance sheet after the statement of equity right?
Well the balance sheet is called the balance sheet because it shows that the accounting
equation is in balance assets truly do equal liabilities plus owner's equity and we can
see that what are assets twenty six nine what's your total liabilities and equity twenty six
nine.
It gives the reader a really warm fuzzy to see that those number are the same and that
thing is balanced alright.
Now make sure when you do your balance sheet you need to put this total but I also want
you to label them don't just have twenty six nine down there on the bottom line I want
you to say total assets twenty six nine and then on the other side total liabilities and
equity twenty six nine you with me?
But you can see we list out our assets and the ending balance the ending balances remember
when we did the transaction analysis exercise one eleven remember how we had the ending
balances at the end of that exercise we had the ending balances at the very bottom of
that page that's what you could use to prepare financial statements.
Let me see what else here this one is prepared in proper form, what do I mean by proper form?
I mean it has the name of the company it has the name of the statement and it's dated properly
now this one is dated a little bit different isn't it?
It doesn't say for the month ended it just says December thirty first two thousand ten
and that's proper if the student who prepared this were to say for the month of ended December
thirty first of two thousand ten on the test I would lovingly taken off a point, and here's
why.
Come off the screen for a second when we talk about assets and liabilities we're talking
about a point in time it's like a snap shot for example nobody here works at a bank right?
Does anybody here have a checking account?
Well Jake if you called the bank and say how much money do I have in my checking account
they would say as of today you have eight hundred and twelve dollars and four cents
you wish ok.
But they wouldn't say for the last month this is what you had because it goes up and down
doesn't it?
Anybody here have a car loan Marlin if you called up a bank how much is my auto loan
payable they would say as of right now it is twenty two hundred and sixteen cents.
They wouldn't say for the last month this is what it's been no it changes every day
interest builds up you make payments its changing all the time so when you're talking about
liabilities or equity it's at a point in time make sense?
So the only way to date a balance sheet is either say December thirty one two thousand
ten or as of December thirty one two thousand ten but don't be saying for the year ended
or for the month ended because it wasn't those same amounts during that whole period time
I know that sounds gosh this guy's picky well no not picky may be I am picky, but I want
you to learn it's just as easy to learn it the right way correct?
And remember we are preparing this for other people to look at we want it to make sense
to them or else they won't help them make better decisions correct?
So the income statement and statement of equity are going to be dated the same way in this
case it was for the month of December thirty one two thousand ten and the balance sheet
'boom at December thirty one two thousand ten.
Anything else any questions looking at this statement?
Well get some practice in preparing those.
Now the fourth financial statement that we're going to prepare the fourth financial that
we're going to prepare, or I shouldn't say that the fourth financial statement that financial
accountants prepare is the cash flow statement or the statements of cash flows.
Now let's look at this and appreciate its beauty but you as a student in this class
will not prepare this financial statement I want you to know that this it's the fourth
financial statement but you do not prepare the statement of cash flows in this class
it's beyond the scopes of this class.
Does anybody know that they are going to be taking accounting two sometime well we will
be learning it then ok.
It's a little bit more difficult it basically shows cash flows don't worry about it now.
The only question I might ask you what's that fourth financial statement it's the statement
of cash flows.
The one's that you will prepare and you will prepare them in this order are the income
statement the statement of owner's equity the balance sheet boom, boom, boom they flow
right into each other cool.
Questions?
I can already tell we're not going to have time to go through that exercise one eight
was that kind of tough?
Exercise one eight?
It wasn't as tough as exercise one eleven?
Well we will go through exercise one eight next time so if you haven't done it if you
haven't done it I'm going to give you a little bit of a hint ok and this is for you folks
at home too we know it is exercise one eight that we didn't go through right?
We know that assets equals liabilities plus owners' equity we know that right?
And we also know that has to be true at the beginning of the period and also at the end
of the period right?
And then whatever change occurs change being the triangle delta signs that has to also
be the case right?
So what you can do is and I'm especially talking about B and C on exercise one eight if they
give you beginning numbers put those in here figure out the other one if they give you
ending numbers put those here if they give you changes put those there it's kind of like
a puzzle, because it has to work vertically and it also has to work horizontally.
Does that make sense?
So if you haven't done exercise one eight you might use that formant ok.
Alright let's talk about what your homework is going to be.
Ok what I want you to do for next time is.
I want you to do quick study one twelve and I guarantee you're going to have a test question
like that.
That is giving you accounts and asking you financial statements they go on that's very,
very important to be able to do so quick study one twelve.
I'm not done not even near done I want you to do
not going to sign that one yet the other one I will sign is exercise one fourteen one fifteen
and one sixteen now exercise one fourteen one fifteen and one sixteen are you preparing
an income statement a statement of equity and a balance sheet and let me see if there
is anything seems like there was a note I wanted to make on that yes there is ok.
Let's take a look at this real quick this is exercise one fourteen whoa you getting
seasick there?
See this owner investment seventy four hundred ok let's just read through this on October
first she organized real solutions and then you're going to prepare financial statements
on October thirty first you with me?
Ok see this owner investment seventy four thousand see that?
Let's just assume that she made that on October the second you with me?
Because a lot time people are like I don't know are you telling me that that's the beginning
capital or is that an investment by the owners during the month or what?
Well let's just say she made that on October the second of two thousand and do they give
us a year?
Let's just say on October second so what would be the beginning balance of capital on October
first zero you with me?
Ok that's the one thing I wanted to clarify there the other thing that you might do we
have about twenty seconds left.
Is when you go through these the first thing that I would recommend that you do is go through
each one of these and write down what financial statement it goes on and then as you put it
on that financial statement circle it or put a checkmark by it otherwise you're going to
forget to put an account on a financial statement.
You with me?
Ok so I want to make sure here's the total homework assignment right here I'll tell you
what I'll go ahead and do I'll put exercise one eight down again to remind us to do it
if we haven't and to remind me to go over it next time alright.
You guys are doing great we'll see you next time bye bye.