ACCOUNTING January 30, C4cz2HkeY

 Chapter 7 Covers the preparation of an income statement and a balance sheet for a proprietorship.  Not only is statement preparation covered but also the financial statement analysis of these statements (in simplest form).

 Answer the critical Thinking questions that follow. Warm Up

 Chose two companies in the same industry. Go to the homepage for each company and search for its most current financial statements.  Answer the questions that follow.  HINT: Total expenses / Total Revenue  Net Income (loss) / total revenue

 Adequate Disclosure › Applied when financial statements contain all information necessary to understand a business’s financial condition › Without it, financial information would be incomplete.

 Define Accounting Terms related to financial statements for a service business organized as a proprietorship.  Identify accounting concepts and practices related to preparation of an income statement.  Prepare an income statement and analyze an income statement using component percentages.

 How many of you would work for a year, not knowing how much you were going to make during that year? Compare this with a company that waits until the end of the year to determine how much the company “made” during the year. This helps explain why a business would prepare an income statement every month- even if it is not required to do so.

 Component percentage : the percentage relationship between one financial statement item and the total that includes that item. (p. 184)  Stakeholders : any persons or groups who will be affected by an action (p. 181)

 Income Statement reports information over a specific period of time.  The date used to prepare the income statement is obtained from the Income statement columns of a work sheet.  Remember that the heading of most financial statements answers the questions: WHO? WHAT? And WHEN?

10 LESSON 7-1 page 182

11 LESSON page Center the name of the company on the first line. 2.Center the name of the report on the second line. 3.Center the date of the report on the third line.

 Revenue an increase in owner’s equity resulting from the operation of a business. (p. 14)  Expense a decrease in owner’s equity resulting from the operation of a business. (p. 15)

 Heading  Revenue  Expenses  Net Income or Loss  NOTE: the two columns on the income statement are not debit and credit columns.

 The account titles are indented under section titles to make the sections titles easier to read  The account balances are listed in the first column, totals in the second column.

15 LESSON 7-1 page Revenue 3 Revenue amount 4 Expenses 5 Account titles 6 Expense amount 8 Total expenses 9 Total of expenses 12 Net Income 7 Single line Calculate net income 14 Double lines 13 Record net income 2 Account title

16 LESSON 7-1 page 184

 Try Aplia(Work Together and On Your Own)  Character Counts Key Term-Stakeholders……

 Can you name a business that might have more than one source of revenue from services?  Example: A music store might offer lessons and repairs on instruments.

 The data for the income statement is found on the work sheet.  Today, we will focus on how two sources of revenue can be documented on an income statement but it must be listed separately, similar to the way that each expense is listed.

 There is a NET LOSS.  Let’s take a look!!!!!

21 LESSON 7-1 page Revenue 3 Revenue amounts 2 Account titles 6 Net Loss 7 Record Net Loss 5 Total Revenue 4 Total of revenue

22 LESSON 7-1  stakeholders  component percentage  Component percentage : the percentage relationship between one financial statement item and the total that includes that item. (p. 184)  Stakeholders : any persons or groups who will be affected by an action (p. 181) page 186

 Aplia Application Problem 7-1  Math Work Sheet  Part A & Part B.  On the bottom of the worksheet answer the following questions

 Identify accounting concept and practices related to the preparation of a balance sheet for a service business organized as a proprietorship.  Prepare a Balance Sheet for a service business organized as a proprietorship.

 ASSETS = LIABILITIES + OWNERS EQUITY  The Balance Sheet uses the same format as the accounting equation.  This part of the chapter will discuss preparing a balance sheet using data on the work sheet.

 Balance Sheet Reports information for a SPECIFIC date.  The data used to prepare the balance sheet can be obtained from the balance sheet columns of the worksheet.  The heading of most financial statements answers the questions: WHO? WHAT & WHEN?

29 LESSON 7-2 page Center the name of the company on the first line. 2.Center the name of the report on the second line. 3.Center the date of the report on the third line.

 Assets  Liabilities  Owner’s Equity

31 LESSON 7-2 page 187 The Information needed to prepare the assets section is obtained from the Balance Sheet Debit Column.

32 LESSON 7-2 page 187 The Information needed to prepare the liabilities section is obtained from the Balance Sheet Credit Column.

33 LESSON 7-2 page Liabilities 1 Assets Total Liabilities8 2 Account titles 3 Asset amounts Single line 7 6 Liability amounts 5 Account titles Total of liabilities 9

 Read “Case for Critical Thinking” on page 197 and answer the question that follow. You can use the back of the work sheet provided to you.  Then Try Applied Communication on the same page and write down your advice to your new assistant.

 Owners Equity -the amount remaining after the value of all liabilities is subtracted from the value of all assets  The information needed to prepare the owner’s equity section of a balance sheet is obtained from the Balance Sheet columns of the work sheet

 Capital Account Balance-Net Loss- Drawing Account Balance=Current Capital (Page 189)  Lets look at the ten steps for preparing the owner’s equity section of a balance sheet.

37 LESSON 7-2 page Total Liab. and Owner’s Eq.5 Total Assets 1 Owner’s Equity 2 Account title 3 Capital amount 4 Single line 6 Total of assets 8 Total of Liabilities and Owner’s Equity 9 Compare totals 10 Double lines

 The Owner’s Equity section of a balance sheet can show more detail than that shown on a balance sheet.  A business may choose to show more details in the owner’s equity section.  There are 9 steps used to prepare the owner’s equity section reported in detail on a balance sheet.

39 LESSON 7-2 page Beginning capital amount 6 Difference 8 Current capital amount 1 Beginning capital 3 Net Income 4 Drawing Ending capital 7 9 Total Liabilities and Owner’s Equity 5 Single line

 Aplia 7-2 Work Together and On Your Own.  Chapter 7 Study Guide  Extra Study Tools AND  Take Online Tutorial Quiz ›

 List the four sections on a balance sheet.  What is the formula for calculating current capital?