AC 210 Lecture Notes - Lecture 16: Accounting Equation, Accounts Receivable, Cash Flow

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silvercicada472

5 Jun 2018

School

University of Alabama

Department

Accountancy

Course

AC 210

Professor

Lisa Mc Kinney

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Financial Statements

Financial statements are prepared immediately after the adjusted trial balance. Knowing

how to record transactions, make adjusting entries, and create trial balances gives you

a greater under‐standing of the information financial statements contain.

Income statement. The income statement, which is sometimes called the statement of

earnings or statement of operations, lists all revenue and expense account balances

and shows the company's net income or net loss for a particular period of time. This

statement may be prepared using a single‐step or multiple‐step format. The single‐step

format puts revenue and expense accounts into separate groups. Then, total expenses

are subtracted from total revenues to determine the net income or loss.

The Greener Landscape Group Income Statement For the Month Ended April

30,20X2

Revenues

Lawn Cutting Revenue

$845

Expenses

Wages Expense

$280

Depreciation ExpenseڏVehicles

200

Insurance Expense

100

Interest Expense

Depreciation Expenseڏ

Equipment

Advertising Expense

Gas Expense

Supplies Expense

Total Expenses

784

Net Income

$ 61

The multiple‐step format uses the same accounts and balances but separates the cost

of services provided from operating expenses and also includes a category for other

types of income and expense.

The Greener Landscape Group Income Statement For the Month Ended April

30,20X2

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Revenues

Lawn Cutting Revenue

$845

Cost of Services Provided

Wages Expense

$280

Depreciation ExpenseڏVehicles

200

Insurance Expense

100

Depreciation Expenseڏ

Equipment

Gas Expense

Total Cost of Services

Provided

645

Gross Profit

200

Operating Expenses

Advertising Expense

Supplies Expense

Total Operating Expenses

Operating Income

140

Other Income/(Expense), Net

Interest Expense

(79)

Net Income

$ 61

Companies may use slightly different categories for expenses, but the overall structure

for this type of income statement is essentially the same. For example, merchandising

companies include a category for the cost of goods sold, and many companies break

operating expenses into two subcategories: selling expenses and general and

administrative expenses

Statement of owner's equity. The statement of owner's equity shows activity in the

owner's equity accounts for a particular period of time. The capital account's opening

balance is followed by a list of increases and decreases, and the account's closing

balance is calculated from this information. Increases include investments made by the

owner and net income. Decreases include owner withdrawals and net loss. Since the

income statement already shows all revenue and expense account balances, only the

company's net income or loss appears on this statement.

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Document Summary

Financial statements are prepared immediately after the adjusted trial balance. Knowing how to record transactions, make adjusting entries, and create trial balances gives you a greater under standing of the information financial statements contain. statement may be prepared using a single step or multiple step format. The income statement, which is sometimes called the statement of earnings or statement of operations, lists all revenue and expense account balances and shows the company"s net income or net loss for a particular period of time. This format puts revenue and expense accounts into separate groups. Then, total expenses are subtracted from total revenues to determine the net income or loss. The multiple step format uses the same accounts and balances but separates the cost of services provided from operating expenses and also includes a category for other types of income and expense. The greener landscape group income statement for the month ended april.

Related Questions

QUESTION 5 Which of the following statements BEST definesfinancial statements? A. Financial statements are plans andforecasts for future time periods. B. Financial statements are theverbal statements made to business news organizations by chieffinancial officers. C. Financial statements are documents thatreport on a business in monetary terms, providing information tohelp people make informed business decisions. D. Financialstatements are the information systems that record and measurebusiness transactions.

QUESTION 6 Which of the following statements is true of a trialbalance? A. A trial balance has the same format as a balance sheet.B. A trial balance presents data in debit and credit format. C. Atrial balance shows total amounts of assets, liabilities, but notequity. D. A trial balance is prepared after the balance sheet.

QUESTION 7 There are relatively few types of revenue. Which ofthe following in NOT a type of revenue? A. Sales B. Service C.Interest D. Unearned Revenue

QUESTION 8 The financial statements should be prepared in whatorder? A. Income statement, statement of owner's equity, balancesheet, statement of cash flows B. Balance sheet, statement ofowner's equity, income statement, statement of cash flows C.Statement of owner's equity, balance sheet, income statement,statement of cash flows D. Balance sheet, income statement,statement of owner's equity, statement of cash flows

QUESTION 9 Which of the following journal entries would berecorded if a business makes a cash payment to a supplier of $600"on account" (the business had purchased supplies on account in theprevious month)? A. Accounts payable 600 Cash 600 B. Accountspayable 600 Supplies 600 C. Cash 600 Supplies 600 D. Cash 600Accounts payable 600

QUESTION 10 Which of the following statements about revenue isCORRECT? A. Revenues increase owner's equity, so a revenueaccount's normal balance is a credit balance. B. Revenues decreaseowner's equity, so a revenue account's normal balance is a debitbalance. C. Revenues increase owner's equity, so a revenueaccount's normal balance is a debit balance. D. Revenues decreaseowner's equity, so a revenue account's normal balance is a creditbalance.

QUESTION 11 From a legal perspective, a proprietorship is: A.not a distinct entity from its proprietor. B. authorized understate charter. C. an entity separate from its proprietor. D.subject to regulation by the SEC.

QUESTION 12 Sharon Samson starts a plumbing service namedReliable Waterworks. Selected transactions are described asfollows: A) Sharon deposits $7,000 into a new checking account forthe business, recording the capital contribution. B) Reliable pays$4,000 cash for equipment to be used for plumbing repairs. C)Reliable borrows $15,000 from a local bank and deposits the moneyin the checking account. D) Reliable pays $600 rent for the firstmonth. E) Reliable pays $400 cash for plumbing supplies to be usedon various jobs in the future. F) Reliable completes a plumbingrepair project for a local lawyer and receives $1,300 cash. G)Sharon takes a cash withdrawal of $2,500. After all of thetransactions, what is the amount of total assets? A. $25,700 B.$20,200 C. $24,200 D. $5,200

QUESTION 13 The Accounts Payable account is a(n) ________account and carries a ________ normal balance. A. liability; debitB. asset; debit C. liability; credit D. asset; credit

QUESTION 14 The following are the ending month's balances forToys Galore. Accounts payable $6,790 Revenue $8,680 Cash $4,500Expenses $1,050 Furniture $8,370 Accounts receivable $ 7,710Capital $930 Notes payable $5,230 What is the total amount ofcredits for the trial balance? A. $30,310 B. $16,400 C. $21,630 D.$20,580

QUESTION 15 The Sarbanes-Oxley Act ("SOX") made it a criminaloffense to: A. steal shareholders' money. B. default on loans fromcreditors. C. declare bankruptcy. D. falsify financialinformation.

QUESTION 16 Which of the following is the order of steps tojournalize an entry? A. Record the transaction, identify eachaccount affected, determine increase or decrease in each account.B. Identify each account affected, determine increase or decreasein each account, record the transaction. C. Identify each accountaffected, record the transaction, determine increase or decrease ineach account. D. Determine increase or decrease in each account,identify each account affected, record the transaction

QUESTION 17 Mitchell Florists had the following total assets,liabilities, and equity as of December 31. Assets $450,000Liabilities 135,000 Equity 315,000 What is Mitchell's debt ratio asof December 31? A. 30% B. 70% C. 100% D. 43%

QUESTION 18 Which of the following financial statements reportsrevenues? A. Statement of cash flows B. Income statement C.Statement of owner's equity D. Balance sheet

QUESTION 19 Following is a list of account balances (except forowner's capital) of Wilson Mowing Service as of December 31 of thefirst year of operation: Accounts receivable $2,500 Accountspayable $3,500 Salary expense $4,500 Repairs expense $800 Truck$8,500 Equipment $6,300 Notes payable $8,200 Cash $6,800 Suppliesexpense $1,600 Service revenue $31,900 Gasoline expense $3,800Salary payable $200 The proprietor, J.D. Wilson, contributed $3,000at the beginning of the year; during the year, the proprietor took$12,000 in drawings. At the end of the year, what is net income? A.$11,900 B. $21,200 C. $24,100 D. $12,200

QUESTION 20 Which of the following is an asset account? A.Salaries Expense B. Accounts Payable C. Service Revenue D. PrepaidExpense

QUESTION 21 A journal entry for a $75 payment for Rent expensewas posted as a debit to Salary expense and a credit to Cash. Thiserror will cause which of the following conditions on the trialbalance? A. The sum of the credits will equal the sum of thedebits. B. The sum of the debits will exceed the sum of the creditsby $75. C. The sum of the credits will exceed the sum of the debitsby $150. D. The sum of the debits will exceed the sum of thecredits by $150.

QUESTION 22 The business receives cash from a customer that isowed to the company "on account," based on services rendered to thecustomer previously. How does the collection of the cash affect theaccounting equation? A. Assets increase; owner's equity increases.B. Assets increase; liabilities increase. C. Assets decrease;owner's equity decreases. D. One asset increases; one assetdecreases

QUESTION 23 A business completes service to a client and sendsout a sales invoice. The amount will be collected from the customerat a later time. Which of the following would be TRUE at the timewhen the invoice is sent out? A. Total assets will decrease. B. Netincome will increase. C. Owner's equity will decrease. D. Totalliabilities will increase.

QUESTION 24 Which of the following accounts increases with adebit? A. Cash B. Interest Payable C. Accounts Payable D. Smith,Capital

QUESTION 25 The Accounts Receivable account of Nuptials Inc. isshown below. Accounts Receivable Dr Cr 26,000 3,500 5,000 Calculatethe ending balance of the account. A. $33,500 debit B. $31,000,debit C. $3,500, credit D. $27,500, debit

QUESTION 26 The following transactions for the month of Marchhave been journalized and posted to the proper accounts. Mar. 1Martinez invested $9,000 cash in his new design services business.Mar. 2 Paid the first month's rent of $800. Mar. 3 Purchasedequipment by paying $3,000 cash and executing a note payable for$5,000. Mar. 4 Purchased office supplies for $750 cash. Mar. 5Billed a client for $10,000 of design services completed. Mar. 6Received $8,000 on account for the services previously recorded.What is the balance in Cash? A. $13,250 B. $12,450 C. $15,450 D.$14,000

QUESTION 27 Which of the following sequences states the order inwhich a trial balance lists accounts? A. Equity â Assets âLiabilities B. Liabilities â Assets â Equity C. Assets â Equity âLiabilities D. Assets â Liabilities â Equity

QUESTION 28 Which of the following statements is FALSE? A. Atrial balance shows total amounts for assets, liabilities, andequity. B. A trial balance is created before the balance sheet isprepared. C. A trial balance presents data in debit and creditformat, but a balance sheet does not. D. A trial balance showstotal debits and total credits.

QUESTION 29 A promise received from a business's customers topay for goods and services that they received from the business iscalled a(n): A. revenue. B. account receivable. C. account payable.D. expense.

QUESTION 30 You can evaluate the economic resources, debt, andoverall financial position of a company in which of the followingfinancial statements? A. Income statement B. Balance sheet C.Statement of owner's equity D. Statement of cash flows

QUESTION 31 A book holding all of the accounts is called the: A.income statement. B. journal. C. ledger. D. balance sheet.

QUESTION 32 Which of the following groups of accounts BOTHnormally have a debit balance? A. Assets and Liabilities B.Liabilities and Owner's equity C. Revenues and Expenses D. Assetsand Expenses

QUESTION 33 A business buys $500 of supplies on account. Whichaccount is debited? A. Supplies B. Cash C. Service revenue D.Accounts payable

Create a Multi-Step Income Statement, Statement of Retained Earnings, Classified Balance Sheet and Statement of Cash Flows. These financial statements are being prepared for the fiscal month ending May 31st. Build the financial statements within the given blanks. The month of May's worksheet is to be utilized while creating the financial statements. Additional information folows:

-For the Statement of Retained Earnings, assume a beginning balance in the Retained Earnings account of $366,000. Also assume that $345,500 of dividends were declared.

-For the Classified Balance Sheet, assume that the company only has common stock and that the value of common stock at par value equals $30,200. Further assume that the value of paid-in-capital excess of par on the common stock has a value of $1,560,000.

-For the Statement of Cash Flow assume that the company purchased equipment with $200,000 cash. The company sold land and received $429,000 in cash. Also assume the following ending balances from the last financial period: Cash: $345,091; A/R: $525,000; Inventory: $836,000; Office Supplies: $5,000; A/P: $675,800. Additionally, the company paid cash dividends during the period of $345,500. Create the Statement of Cash Flow using the Indirect Method.

Worksheet for May

	Unadjusted				Adjusted		Income		Bal. Sheet
	Trial Balance		Adjustments		Trial Balance		Statement		Stmt. Own. Equity
Account Title	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.
Cash	250,000				250,000				250,000
Accounts Receivable	280,000				280,000				280,000
Allowance for Doubtful Accounts		12,500		2,415		14,915				14,915
Merchandise Inventory	745,000			5,000	740,000				740,000
Office Supplies	2,300			735	1,565				1,565
Prepaid Insurance	7,000			3,500	3,500				3,500
Land	1,628,803				1,628,803				1,628,803
Building	1,000,000				1,000,000				1,000,000
Accumulated Depreciation - Building		700,000				700,000				700,000
Equipment & Furniture - Warehouse	7,900				7,900				7,900
Accumulated Depreciation - Equip & Furn. - Warehouse		5,643		775		6,418				6,418
Equipment & Furniture - Office	7,421				7,421				7,421
Accumulated Depreciation - Equip & Furn. - Office		2,000		825		2,825				2,825
Accounts Payable		800,000				800,000				800,000
Wages Payable		0				0				0
Interest Payable		2,500				2,500				2,500
Dividends Payable		0				0				0
Unearned Rent		7,400	2,143			5,257				5,257
Notes Payable		200,000				200,000				200,000
Bonds Payable		90,000				90,000				90,000
Mortgage (Warehouse) Payable		197,000				197,000				197,000
Common Stock, $1 Par, 100,000 Authorized; 60,000 shares Issued/Outstanding		30,200				30,200				30,200
Paid In Capital - Excess of Par		1,560,000				1,560,000				1,560,000
Retained Earnings		20,500				20,500		289,574		310,074
Treasury Stock		0			0				0
Sales		1,067,500				1,067,500	1,067,500
Cost of Goods Sold	636,700		5,000		641,700			641,700
Wage Expense (hourly workers)	10,000				10,000			10,000
Salaries Expense (Exempt Staff)	32,100				32,100			32,100
Marketing Expense	64,000				64,000			64,000
Travel and Entertainment Expense	1,250				1,250			1,250
Bad Debt Expense	0		2,415		2,415			2,415
Property Tax Expense	1,455				1,455			1,455
Office Maintenance & Repair Expense	0				0			0
Legal Expenses	6,340				6,340			6,340
Insurance Expense	0		3,500		3,500			3,500
Utilities Expense	2,000				2,000			2,000
Office Supplies Expense	0		735		735			735
Telecommunications Expense	754				754			754
Depreciation Expense - Equip & Furniture - Warehouse	0		775		775			775
Depreciation Expense - Equip & Furniture - Office	0		825		825			825
Rent Income		0		2,143		2,143	2,143
Interest Expense	12,220				12,220			12,220
Total	4,695,243	4,695,243	15,393	15,393	4,699,258	4,699,258	1,069,643	1,069,643	3,919,189	3,919,189
								0		0
Net Income (Loss)							1,069,643	1,069,643	3,919,189	3,919,189

Income Statement
For the Month Ended May 31, 2016
Sales

Statement of Retained Earnings
For the Month Ended May 31, 2016

Balance Sheet
May 31, 2016

Statement of Cash Flow
For the Month Ended May 31, 2016

whitesnake168

Emerald Ltd, a manufacturing company, commenced operations on 1 July 2016 by issuing 350 000 $5.00 shares, payable in full on application on a first-come, first-served basis. By 31 July 2016 the shares were fully subscribed and duly allotted. There were share issue costs of $10 000. No additional shares were issued during the year ending 30 June 2017.

For the year ending 30 June 2018, the company recorded the following aggregate transactions:

	$
Sales	5 120 000
Interest income	34 000
Sundry income	25 000
Cost of Sales	2 465 000
Employee benefit expenses	856 000
Depreciation expense	244 000
Amortisation - franchise	25 000
Rental expense	120 000
Advertising expense	147 000
Insurance expense	48 000
Freight out expense	110 000
Doubtful debts expense	16 000
Interest expense	36 000
Borrowing Costs	9 000
Other expenses	8 000
Income tax expense	320 000

The following additional information was noted during the preparation of financial statements for the year ended 30 June 2018:

75 000 fully paid ordinary shares have been issued on 1 October 2017 at the price of $4.00.

$135 000 dividends (31.76 cents per share) were declared and paid during the 2018 financial year. A final dividend for 2018 of $51 850 was proposed but not recognised in the financial statements.

There was a gain of $20 000 from the cash flow hedge arrangement during the 2018 financial year. Any gain or loss associated with the cash flow hedge is directly recognised in equity. There was no previously recognised cash flow hedge reserve before the 2018 financial year.

$25 000 of bank loans is repayable within 1 year.

$90 000 of other loans is repayable within 1 year.

The employee benefits of $32 000 are expected to be settled wholly within 12 months.

Emerald Ltd measures inventory at the lower of cost and net realizable value and property, plant and equipment using a cost model.

The summarised balances are provided below:

Year-end balances, 30 June 2018	$
Cash on hand	960 000
Cash on deposit, at call	82 000
Accounts Receivables	665 000
Allowance for doubtful debts/ Impairments	24 000
Other debtors	27 000
Finished goods inventories, 30 June 2018	600 000
Work in Progress inventories 30 June 2018	105 000
Land	94 000
Buildings	230 000
Accumulated depreciation â buildings	60 000
Plant and equipment	1 385 000
Accumulated depreciation â plant and equipment	330 000
Franchises	140 000
Accumulated amortisation of franchise	50 000
Goodwill	620 000
Bank loans	92 000
Other loans	440 000
Accounts payable	696 000
Provision for employee benefits	116 000
Income tax payable	35 000
Deferred tax liability	140 000
Retained earnings, 30 June 2017	225 000
Dividends paid	135 000
Cash flow hedge reserve (equity)	20 000

Required:

For the year ending 30 June, 2018,

a) Using the pro forma table supplied in appendix B, prepare a preliminary trial balance for Emerald Ltd; (5 Marks)

b) Prepare a statement of profit or loss and comprehensive income for Emerald Ltd in accordance with the requirements of AASB 101. Emerald Ltd uses the single statement format for the statement of comprehensive income and classifies expenses by function within the statement; (18 marks)

c) Prepare a statement of changes in equity for Emerald Ltd in accordance with the requirements of AASB 101; (15 marks)

d) Prepare a statement of financial position for Emerald Ltd in accordance with AASB 101. Use the current/non-current presentation format; (17 marks)

e) Prepare appropriate notes to the accounts. (You do not need to prepare notes related to income taxes. Include the following note as note 1. You may optionally add accounting policies to this note): (25 marks).

â1. Summary of significant accounting policies

Basis of accounting

The financial report is a general purpose financial report which has been prepared on the historical cost basis, except where stated otherwise.

Statement of Compliance

The financial statements have been prepared in accordance with the requirements of the Corporations Act, Australian Accounting Standards which include Australian equivalents to International Financial Reporting Standards (AIFRSs) and AASB Interpretations. Compliance with AIFRSs ensures the financial statements and notes comply with International Financial Reporting Standardsâ

APPENDIX A: PRESENTATION REQUIREMENTS (Departures attract a penalty)

The hard copy of the assignment must be handed in to the lecturer in class. It is also required to be submitted through Turnitin by the due date;

It is worth 20% of the final grade but will be marked out of 100;

The assignment will be marked on the basis of a requirement of "suitable for publication", that is, the relevant statements/notes comprise an external report and each statement is to be presented on one page;

The assignment must be performed individually.

You are to employ an aggregated format whenever appropriate and consistent with provision of minimum line items prescribed in AASB101;

The financial statements and the notes are to be typed in 12 point font;

You are not to use specialized accounting software packages, such as are employed by professional accounting firms, to produce your financial reports;

You are to apply the âcost of salesâ method to the classification of expenses in the income statement (see AASB101 paras 97-105);

You are directed to use the current/non-current format for the statement of financial position (balance sheet) and supply a ânet assetsâ line item;

The notes are to be simplified equivalences to published reports; that means a list of constituent components of a given line item with their respective dollar amounts, not footnotes

Your hard copy assignment is to be collated in the following order:

Coversheet (optional for electronic version but mandatory, signed with ticked module and Turnitin ID, for hard copy), Part A followed by Part B (trial balance, statement of profit or loss comprehensive income, statement of changes in equity, statement of financial position, and notes to the accounts.

APPENDIX B

Emerald Ltd - Trial Balance as at 30 June 2018	DR	CR
Sales	$â000	$â000
Interest income
Sundry income
Cost of sales
Employee benefit expenses
Depreciation expense
Amortisation - franchise
Rental expense
Advertising expense (selling)
Insurance expense
Freight out expense
Doubtful debts expense
Interest expense
Borrowing costs
Other expenses
Income tax expense
Cash on hand
Cash on deposit, at call
Accounts Receivables
Allowance for doubtful debts/ Impairments
Other debtors
Finished goods inventories, 30 June 2018
Work in Progress inventories 30 June 2018
Land
Buildings
Accumulated depreciation â buildings
Plant and equipment
Accumulated depreciation â plant and equipment
Franchise
Accumulated amortisation of franchise
Goodwill
Bank loans
Other loans
Accounts payable
Provision for employee benefits
Income tax payable
Deferred tax liability
Retained earnings, 30 June 2017
Dividends paid
Cash flow hedge reserve
Share capital
Totals

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AC 210 Lecture Notes - Lecture 16: Accounting Equation, Accounts Receivable, Cash Flow

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