2. Accounting Fundamentals Accounting Fundamentals Structure of Financial Statements

3. Topic Coverage 1. Consolidated balance sheet 2. Consolidated income statement 3. Consolidated cash flow statement 4. Monthly cash flow statement and LOC needs 5. Debt repayment capacity statement 6. Linkages between financial statements 7. Introduction to financial statement analysis

4. Annual Consolidated Balance Sheet

5. Basic Structure of the Balance Sheet Assets:Liabilities and Net Worth: Current assetsCurrent liabilities plus Long term assetsplus Long term liabilities plus Net worth equals Total assetsequals Total liabilities and net worth Assets:Liabilities and Net Worth: Current assetsCurrent liabilities plus Long term assetsplus Long term liabilities plus Net worth equals Total assetsequals Total liabilities and net worth Often referred to as equity Often referred to as equity Page 3 in booklet

6. Balance Sheet Structure

7. Annual Consolidated Income Statement

8. Basic Structure of Income Statement Cash receipts from product sales Minus Operating and interest expenses Equals Net cash income from operations Plus Gain (loss) on sale of long term assets Plus Cash subsidies received Less Depreciation allowances Equals Income (loss) before taxes Minus Provision for income taxes Equals Net income Cash receipts from product sales Minus Operating and interest expenses Equals Net cash income from operations Plus Gain (loss) on sale of long term assets Plus Cash subsidies received Less Depreciation allowances Equals Income (loss) before taxes Minus Provision for income taxes Equals Net income Page 4 in booklet

9. Income Statement Structure

10. Annual and Monthly Cash Flow Statements

11. Basic Structure of Cash Flow Statement Cash available (including cash balance) Minus Cash required Equals Cash available less cash required Plus Available savings withdrawals Equals Cash position Plus Net borrowing Minus Other uses of cash Minus Withdrawals of cash to savings Equals Ending cash balance Cash available (including cash balance) Minus Cash required Equals Cash available less cash required Plus Available savings withdrawals Equals Cash position Plus Net borrowing Minus Other uses of cash Minus Withdrawals of cash to savings Equals Ending cash balance Page 5 in booklet

12. Cash Flow Statement - 1

13. Cash Flow Statement -2 Bottom of statement

14. Cash Flow Statement -3 Last month and annual cash flow statement. Some values in the ACFS are row totals while others are year-end values.

15. Cash Flow Statement -4 Bottom of statement

16. LOC Example

17. Financial Statement Linkages

18. Statement Linkages Data from cash flow statement to income statement: 1.Cash receipts from operations 2.Cash operating expenses 3.All other cash items (e.g., interest payments) Cash flow statement Income statement Balance Sheet

19. Statement Linkages Data from cash flow statement to balance sheet: 1.Ending cash balance 2.Loan balances (current liability portion vs. remaining balance outstanding) 3.Asset adjustments if capital expenditures are made 4.Additions and withdrawals from savings Cash flow statement Income statement Balance Sheet

20. Let’s Examine these Links More Closely

21. 2009 Cash Flow Statement Sources of cash: Beginning cash balance Cash receipts from product sales Other sources of cash Total sources of cash Uses of cash: Cash operating expenses Interest payments Principal payments Capital expenditures Withdrawals of cash Other selected uses of cash Ending cash balance Total uses of cash Basic structure: Total sources = total uses 2009 Income Statement Cash receipts from product sales Other income Total income Cash operating expenses Interest payments Other cash expenses Depreciation Total expenses Net income from operations Allowance for taxes Net income Basic structure: EBIT = total income – total expenses + interest payments Interrelationships Between Financial Statements Balance Sheet 12/31/09 Ending cash balance Other current assets Total current assets Machinery and equipment Buildings and improvements Land Total assets Accounts payable Current loan payment Allowance for taxes Other current liabilities Total current liabilities Remaining balance on loans Total liabilities Equity Basic Structure: Equity = total assets – total Liabilities  Equity = Retained net Income + asset revaluations Other statements and schedules: Statement of Change in Owner Equity Depreciable asset schedules

22. 2009 Cash Flow Statement Sources of cash: Beginning cash balance Cash receipts from product sales Other sources of cash Total sources of cash Uses of cash: Cash operating expenses Interest payments Principal payments Capital expenditures Withdrawals of cash Other selected uses of cash Ending cash balance Total uses of cash Basic structure: Total sources = total uses 2009 Income Statement Cash receipts from product sales Other income Total income Cash operating expenses Interest payments Other cash expenses Depreciation Total expenses Net income from operations Allowance for taxes Net income Basic structure: EBIT = total income – total expenses + interest payments Interrelationships Between Financial Statements Balance Sheet 12/31/09 Ending cash balance Other current assets Total current assets Machinery and equipment Buildings and improvements Land Total assets Accounts payable Current loan payment Allowance for taxes Other current liabilities Total current liabilities Remaining balance on loans Total liabilities Equity Basic Structure: Equity = total assets – total liabilities  Equity = Retained net Income + asset revaluations Other statements and schedules: Statement of Change in Owner Equity Depreciable asset schedules

23. 2009 Cash Flow Statement Sources of cash: Beginning cash balance Cash receipts from product sales Other sources of cash Total sources of cash Uses of cash: Cash operating expenses Interest payments Principal payments Capital expenditures Withdrawals of cash Other selected uses of cash Ending cash balance Total uses of cash Basic structure: Total sources = total uses 2009 Income Statement Cash receipts from product sales Other income Total income Cash operating expenses Interest payments Other cash expenses Depreciation Total expenses Net income from operations Allowance for taxes Net income Basic structure: EBIT = total income – total expenses + interest payments Interrelationships Between Financial Statements Balance Sheet 12/31/09 Ending cash balance Other current assets Total current assets Machinery and equipment Buildings and improvements Land Total assets Accounts payable Current loan payment Allowance for taxes Other current liabilities Total current liabilities Remaining balance on loans Total liabilities Equity Basic Structure: Equity = total assets – total liabilities  Equity = Retained net Income + asset revaluations Other statements and schedules: Statement of Change in Owner Equity Depreciable asset schedules

24. 2009 Cash Flow Statement Sources of cash: Beginning cash balance Cash receipts from product sales Other sources of cash Total sources of cash Uses of cash: Cash operating expenses Interest payments Principal payments Capital expenditures Withdrawals of cash Other selected uses of cash Ending cash balance Total uses of cash Basic structure: Total sources = total uses 2009 Income Statement Cash receipts from product sales Other income Total income Cash operating expenses Interest payments Other cash expenses Depreciation Total expenses Net income from operations Allowance for taxes Net income Basic structure: EBIT = total income – total expenses + interest payments Interrelationships Between Financial Statements Balance Sheet 12/31/09 Ending cash balance Other current assets Total current assets Machinery and equipment Buildings and improvements Land Total assets Accounts payable Current loan payment Allowance for taxes Other current liabilities Total current liabilities Remaining balance on loans Total liabilities Equity Basic Structure: Equity = total assets – total liabilities  Equity = Retained net Income + asset revaluations Other statements and schedules: Statement of Change in Owner Equity Depreciable asset schedules

25. 2009 Cash Flow Statement Sources of cash: Beginning cash balance Cash receipts from product sales Other sources of cash Total sources of cash Uses of cash: Cash operating expenses Interest payments Principal payments Capital expenditures Withdrawals of cash Other selected uses of cash Ending cash balance Total uses of cash Basic structure: Total sources = total uses 2009 Income Statement Cash receipts from product sales Other income Total income Cash operating expenses Interest payments Other cash expenses Depreciation Total expenses Net income from operations Allowance for taxes Net income Basic structure: EBIT = total income – total expenses + interest payments Interrelationships Between Financial Statements Balance Sheet 12/31/09 Ending cash balance Other current assets Total current assets Machinery and equipment Buildings and improvements Land Total assets Accounts payable Current loan payment Allowance for taxes Other current liabilities Total current liabilities Remaining balance on loans Total liabilities Equity Basic Structure: Equity = total assets – total liabilities  Equity = Retained net Income + asset revaluations Other statements and schedules: Statement of Change in Owner Equity Depreciable asset schedules

26. 2009 Cash Flow Statement Sources of cash: Beginning cash balance Cash receipts from product sales Other sources of cash Total sources of cash Uses of cash: Cash operating expenses Interest payments Principal payments Capital expenditures Withdrawals of cash Other selected uses of cash Ending cash balance Total uses of cash Basic structure: Total sources = total uses 2009 Income Statement Cash receipts from product sales Other income Total income Cash operating expenses Interest payments Other cash expenses Depreciation Total expenses Net income from operations Allowance for taxes Net income Basic structure: EBIT = total income – total expenses + interest payments Interrelationships Between Financial Statements Balance Sheet 12/31/09 Ending cash balance Other current assets Total current assets Machinery and equipment Buildings and improvements Land Total assets Accounts payable Current loan payment Allowance for taxes Other current liabilities Total current liabilities Remaining balance on loans Total liabilities Equity Basic Structure: Equity = total assets – total liabilities  Equity = Retained net Income + asset revaluations Other statements and schedules: Statement of Change in Owner Equity Depreciable asset schedules

27. 2009 Cash Flow Statement Sources of cash: Beginning cash balance Cash receipts from product sales Other sources of cash Total sources of cash Uses of cash: Cash operating expenses Interest payments Principal payments Capital expenditures Withdrawals of cash Other selected uses of cash Ending cash balance Total uses of cash Basic structure: Total sources = total uses 2009 Income Statement Cash receipts from product sales Other income Total income Cash operating expenses Interest payments Other cash expenses Depreciation Total expenses Net income from operations Allowance for taxes Net income Basic structure: EBIT = total income – total expenses + interest payments Interrelationships Between Financial Statements Balance Sheet 12/31/09 Ending cash balance Other current assets Total current assets Machinery and equipment Buildings and improvements Land Total assets Accounts payable Current loan payment Allowance for taxes Other current liabilities Total current liabilities Remaining balance on loans Total liabilities Equity Basic Structure: Equity = total assets – total liabilities  Equity = Retained net Income + asset revaluations Other statements and schedules: Statement of Change in Owner Equity Depreciable asset schedules

28. 2009 Cash Flow Statement Sources of cash: Beginning cash balance Cash receipts from product sales Other sources of cash Total sources of cash Uses of cash: Cash operating expenses Interest payments Principal payments Capital expenditures Withdrawals of cash Other selected uses of cash Ending cash balance Total uses of cash Basic structure: Total sources = total uses 2009 Income Statement Cash receipts from product sales Other income Total income Cash operating expenses Interest payments Other cash expenses Depreciation Total expenses Net income from operations Allowance for taxes Net income Basic structure: EBIT = total income – total expenses + interest payments Interrelationships Between Financial Statements Balance Sheet 12/31/09 Ending cash balance Other current assets Total current assets Machinery and equipment Buildings and improvements Land Total assets Accounts payable Current loan payment Allowance for taxes Other current liabilities Total current liabilities Remaining balance on loans Total liabilities Equity Basic Structure: Equity = total assets – total liabilities  Equity = Retained net Income + asset revaluations Other statements and schedules: Statement of Change in Owner Equity Depreciable asset schedules

29. 2009 Cash Flow Statement Sources of cash: Beginning cash balance Cash receipts from product sales Other sources of cash Total sources of cash Uses of cash: Cash operating expenses Interest payments Principal payments Capital expenditures Withdrawals of cash Other selected uses of cash Ending cash balance Total uses of cash Basic structure: Total sources = total uses 2009 Income Statement Cash receipts from product sales Other income Total income Cash operating expenses Interest payments Other cash expenses Depreciation Total expenses Net income from operations Allowance for taxes Net income Basic structure: EBIT = total income – total expenses + interest payments Interrelationships Between Financial Statements Balance Sheet 12/31/09 Ending cash balance Other current assets Total current assets Machinery and equipment Buildings and improvements Land Total assets Accounts payable Current loan payment Allowance for taxes Other current liabilities Total current liabilities Remaining balance on loans Total liabilities Equity Basic Structure: Equity = total assets – total liabilities  Equity = Retained net Income + asset revaluations Other statements and schedules: Statement of Change in Owner Equity Depreciable asset schedules

30. 2009 Cash Flow Statement Sources of cash: Beginning cash balance Cash receipts from product sales Other sources of cash Total sources of cash Uses of cash: Cash operating expenses Interest payments Principal payments Capital expenditures Withdrawals of cash Other selected uses of cash Ending cash balance Total uses of cash Basic structure: Total sources = total uses 2009 Income Statement Cash receipts from product sales Other income Total income Cash operating expenses Interest payments Other cash expenses Depreciation Total expenses Net income from operations Allowance for taxes Net income Basic structure: EBIT = total income – total expenses + interest payments Interrelationships Between Financial Statements Balance Sheet 12/31/00 Ending cash balance Other current assets Total current assets Machinery and equipment Buildings and improvements Land Total assets Accounts payable Current loan payment Allowance for taxes Other current liabilities Total current liabilities Remaining balance on loans Total liabilities Equity Basic Structure: Equity = total assets – total liabilities  Equity = Retained net Income + asset revaluations Other statements and schedules: Statement of Change in Owner Equity Depreciable asset schedules

31. 2009 Cash Flow Statement Sources of cash: Beginning cash balance Cash receipts from product sales Other sources of cash Total sources of cash Uses of cash: Cash operating expenses Interest payments Principal payments Capital expenditures Withdrawals of cash Other selected uses of cash Ending cash balance Total uses of cash Basic structure: Total sources = total uses 2009 Income Statement Cash receipts from product sales Other income Total income Cash operating expenses Interest payments Other cash expenses Depreciation Total expenses Net income from operations Allowance for taxes Net income Basic structure: EBIT = total income – total expenses + interest payments Interrelationships Between Financial Statements Balance Sheet 12/31/09 Ending cash balance Other current assets Total current assets Machinery and equipment Buildings and improvements Land Total assets Accounts payable Current loan payment Allowance for taxes Other current liabilities Total current liabilities Remaining balance on loans Total liabilities Equity Basic Structure: Equity = total assets – total Liabilities  Equity = Retained net Income + asset revaluations Other statements and schedules: Statement of Change in Owner Equity Depreciable asset schedules

32. 2009 Cash Flow Statement Sources of cash: Beginning cash balance Cash receipts from product sales Other sources of cash Total sources of cash Uses of cash: Cash operating expenses Interest payments Principal payments Capital expenditures Withdrawals of cash Other selected uses of cash Ending cash balance Total uses of cash Basic structure: Total sources = total uses 2009 Income Statement Cash receipts from product sales Other income Total income Cash operating expenses Interest payments Other cash expenses Depreciation Total expenses Net income from operations Allowance for taxes Net income Basic structure: EBIT = total income – total expenses + interest payments Interrelationships Between Financial Statements Balance Sheet 12/31/09 Ending cash balance Other current assets Total current assets Machinery and equipment Buildings and improvements Land Total assets Accounts payable Current loan payment Allowance for taxes Other current liabilities Total current liabilities Remaining balance on loans Total liabilities Equity Basic Structure: Equity = total assets – total Liabilities  Equity = Retained net Income + asset revaluations Other statements and schedules: Statement of Change in Owner Equity Depreciable asset schedules

33. 2009 Cash Flow Statement Sources of cash: Beginning cash balance Cash receipts from product sales Other sources of cash Total sources of cash Uses of cash: Cash operating expenses Interest payments Principal payments Capital expenditures Withdrawals of cash Other selected uses of cash Ending cash balance Total uses of cash Basic structure: Total sources = total uses 2009 Income Statement Cash receipts from product sales Other income Total income Cash operating expenses Interest payments Other cash expenses Depreciation Total expenses Net income from operations Allowance for taxes Net income Basic structure: EBIT = total income – total expenses + interest payments Interrelationships Between Financial Statements Balance Sheet 12/31/09 Ending cash balance Other current assets Total current assets Machinery and equipment Buildings and improvements Land Total assets Accounts payable Current loan payment Allowance for taxes Other current liabilities Total current liabilities Remaining balance on loans Total liabilities Equity Basic Structure: Equity = total assets – total Liabilities  Equity = Retained net Income + asset revaluations Other statements and schedules: Statement of Change in Owner Equity Depreciable asset schedules

34. 2009 Cash Flow Statement Sources of cash: Beginning cash balance Cash receipts from product sales Other sources of cash Total sources of cash Uses of cash: Cash operating expenses Interest payments Principal payments Capital expenditures Withdrawals of cash Other selected uses of cash Ending cash balance Total uses of cash Basic structure: Total sources = total uses 2009 Income Statement Cash receipts from product sales Other income Total income Cash operating expenses Interest payments Other cash expenses Depreciation Total expenses Net income from operations Allowance for taxes Net income Basic structure: EBIT = total income – total expenses + interest payments Interrelationships Between Financial Statements Balance Sheet 12/31/09 Ending cash balance Other current assets Total current assets Machinery and equipment Buildings and improvements Land Total assets Accounts payable Current loan payment Allowance for taxes Other current liabilities Total current liabilities Remaining balance on loans Total liabilities Equity Basic Structure: Equity = total assets – total Liabilities  Equity = Retained net Income + asset revaluations Other statements and schedules: Statement of Change in Owner Equity Depreciable asset schedules

35. 2009 Cash Flow Statement Sources of cash: Beginning cash balance Cash receipts from product sales Other sources of cash Total sources of cash Uses of cash: Cash operating expenses Interest payments Principal payments Capital expenditures Withdrawals of cash Other selected uses of cash Ending cash balance Total uses of cash Basic structure: Total sources = total uses 2009 Income Statement Cash receipts from product sales Other income Total income Cash operating expenses Interest payments Other cash expenses Depreciation Total expenses Net income from operations Allowance for taxes Net income Basic structure: EBIT = total income – total expenses + interest payments Interrelationships Between Financial Statements Balance Sheet 12/31/09 Ending cash balance Other current assets Total current assets Machinery and equipment Buildings and improvements Land Total assets Accounts payable Current loan payment Allowance for taxes Other current liabilities Total current liabilities Remaining balance on loans Total liabilities Equity Basic Structure: Equity = total assets – total Liabilities  Equity = Retained net Income + asset revaluations Other statements and schedules: Statement of Change in Owner Equity Depreciable asset schedules