1. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Accounting for a Corporation The Ownership of a Corporation Section 19.1 Stockholders’ equity must be reported in two parts: Equity contributed by the stockholders Equity earned through business profits

2. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Accounting for a Corporation The Ownership of a Corporation Section 19.1 Compare the Balance Sheet for a Sole Proprietorship and a Corporation

3. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Characteristics of Financial Information The Ownership of a Corporation Section 19.1 Who Uses Financial Information? Managers Creditors Stockholders Government Agencies Employees Consumers General Public

4. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting A Corporation’s Financial Statements The Ownership of a Corporation Section 19.1 A merchandising corporation can prepare four financial statements: The Income Statement The Statement of Returned Earnings The Balance Sheet The Statement of Cash Flows

5. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Income Statement Section 19.2 Five Sections of the Income Statement Revenue Cost of Merchandise Sold Gross Profit on Sales Operating Expenses Net Income (or Loss)

6. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Income Statement Section 19.2 The Revenue Section Reports the Net Sales for the Period See page 561 net sales The amount of sales for the period less any sales discounts, returns, and allowances.

7. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Income Statement Section 19.2 Calculating the Cost of Merchandise Sold. Computing the cost of merchandise sold requires two steps: Determine the cost of all merchandise available for sale Calculate the cost of merchandise sold

8. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Income Statement Section 19.2 Calculating the Cost of Merchandise Available for Sale Add Net Purchases to the Beginning Inventory Amount. net purchases The total cost of all merchandise purchased during a period, less any purchases, discounts, returns, and allowances.

9. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Income Statement Section 19.2 See page 563 Calculating the Cost of Merchandise Sold

10. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Income Statement Section 19.2 operating expenses The cash spent or assets consumed to earn a revenue for a business; operating expenses do not include federal income tax expense. Operating Expenses Selling Expenses Administrative Expenses

11. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Income Statement Section 19.2 operating income The excess of gross profit over operating expenses; taxable income. The federal corporate income tax amount is presented separately on the income statement so the income statement shows the amount of operating income.

12. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Analyzing Amounts on the Income Statement The Income Statement Section 19.2 vertical analysis A method of analysis that expresses financial statement items as percentages of a base amount. Vertical analysis enables users to more easily view relationships.

13. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Let’s Create an Income Statement Template! Glencoe Accounting

14. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Statement of Retained Earnings The Statement of Retained Earnings, Balance Sheet, and Statement of Cash Flows Section 19.3 Statement of Retained Earnings

15. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Statement of Retained Earnings The Statement of Retained Earnings, Balance Sheet, and Statement of Cash Flows Section 19.3 Statement of Retained Earnings statement of retained earnings A financial statement that reports the changes in the Retained Earnings account during the period. See page 569

16. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Balance Sheet The Statement of Retained Earnings, Balance Sheet, and Statement of Cash Flows Section 19.3 The Starting Line’s Balance Sheet See page 570

17. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Analyzing Amounts on the Balance Sheet The Statement of Retained Earnings, Balance Sheet, and Statement of Cash Flows Section 19.3 Horizontal analysis uses dollar amounts expressed as percentages to compare the same items on financial statements for two or more accounting periods or dates. A base period is usually used for comparison. horizontal analysis The comparison of the same item(s) on financial statements for two or more accounting periods or dates; used to determine changes from one period to another.

18. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Statement of Cash Flows The Statement of Retained Earnings, Balance Sheet, and Statement of Cash Flows Section 19.3 cash inflow Receipts of cash. See page 573 The Statement of Cash Flows Shows Cash Inflows and Cash Outflows cash outflow Payments of cash.

19. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Statement of Cash Flows The Statement of Retained Earnings, Balance Sheet, and Statement of Cash Flows Section 19.3 Typical Cash Inflows and Outflows for the Three Activities of a Business

20. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Question 1 Match the characteristic of financial information to its definition. A.The information in the financial reports is complete. B.The information is relatively free of errors and bias. C.All information that would affect decision making is included. D.Information from one period can be used to evaluate the information for a different but similar period. E.All important and relevant information should be included. 1. comparability________ 2. reliability________ 3. relevance________ 4. full disclosure________ 5. materiality________ D B C A E

21. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Question 3 “The wide use of computer accounting software makes the understanding of accounting less important.” Do you agree or disagree with that statement, and why? Answers will vary. While computerized accounting programs make the posting and entry of accounting transactions faster and eliminate errors in transferring data from the journal to the ledger, this does not mean that an understanding of accounting is less important. It can be argued that it is more important in this case to have a sound understanding of accounting principles to be able to follow what is happening in the business transaction so a person can determine whether it has been entered correctly.

22. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Let’s Create Statement of Retained Earnings and Balance Sheet Templates! Glencoe Accounting