Accounting Mechanics Summarizing and Reporting

Cup-A-Jo’s Spreadsheet at Year End 2 Assets=Liabilities+Shareholders' Equity Cash Accounts ReceivableInventory Equip- ment Accum. Deprec. Intangible Assets Accounts Payable Taxes Payable Loan Payable Common Stock Retained Earnings 150, , , , , , ,000 35, , , , , , , ,250 -6, , , ,0009, , , ,450 35,000 14,000 60,000 (12,000) 210,000 13,000 9,000 78, ,000 11,700 $472,450=$100,750+$371,700 Ending Balances

Cup-A-Jo’s Balance Sheet 3 Pre- Opening End of Year 1 Pre- Opening End of Year 1 AssetsLiabilities & Shareholders' Equity Current assetsCurrent Liabilities Cash $150,000$165,450Accounts payable $ -$ 13,000 Accounts receivable - 35,000Taxes payable - 9,000 Inventory - 14,000Loan payable-current 11,250 Total current assets 150, ,450Total current liabilities 11,250 33,250 Non-current assetsNoncurrent liabilities Equipment 60,000 Loan payable-noncurrent 78,750 67,500 Accumulated depreciation - (12,000)Total liabilities 90, ,750 Intangible Assets 240, ,000Shareholders' Equity Total noncurrent assets 300, ,000Common Stock 360,000 Total assets$450,000$472,450Retained earnings - 11,700 Total shareholders' equity 360, ,700 Total liabilities & shareholders' equity$450,000$472,450 Total assets grow from $450,000 to $472,450 during year 1

Asset Classifications Classification is based on when the assets are expected to be converted into cash or used Current assets – Assets expected to be converted into cash or used to support operations within 12 months Noncurrent assets – Assets expected to be available to support operations beyond one year 4

Liability Classifications Classifications are based on when the liabilities are expected to require payment Current liabilities – Liabilities expected to require payment within 12 months Noncurrent liabilities – Liabilities expected to require payment beyond one year 5

Cup-A-Jo’s Income Statement 6 Revenues Year 1 $305,000 Cost of goods sold 70,000 Gross profit 235,000 Operating expenses Wages and salaries 82,000 Selling and administrative 41,000 Depreciation expense 12,000 Amortization expense 30,000 Total operating expenses 165,000 Operating income 70,000 Interest expense 6,300 Income before income taxes 63,700 Income taxes expense 24,000 Net income$ 39,700 Key Performance Indicators Revenues Operating Income Gross Profit Net Income Recurring Operations

Statement of Shareholders’ Equity 7 Common Stock Retained Earnings Total Balance at beginning of Year 1 $360,000 $ - $360,000 Net income 39,700 Dividends paid (28,000) Sale of common stock Balance at end of Year 1$360,000$ 11,700$371,700

Statement of Cash Flow Classifies cash into three activity categories – Operating activities Day-to-day cash inflow and outflow from core business operations – Investing activities Purchase and sale of long-term assets – Financing activities Cash flows supporting how the business was financed – Issuing debt or equity – Paying dividends and repayment of debt Based on the cash account 8

9 Operating activities Cash receipts Cash sales $270,000 Total cash receipts Cash disbursements Cash payments for inventory 71,000 Cash payments for interest 6,300 Cash payment for wages 82,000 Cash payments for selling and administrative 41,000 Cash payments for taxes 15,000 Total cash disbursements 215,300 Cash flow from operations 54,700 Investing activities Purchases of property, plant and equipment 0 Cash flow from investing 0 Financing activities Repayment of loan (11,250) Payment of common stock dividends (28,000) Cash flow for financing (39,250) Net cash flow 15,450 Cash balance, beginning of year150,000 Cash balance, end of year$165,450 Change in cash $15,450 Cup-A-Jo’s Statement of Cash Flow For Year 1

Financial Information Presented Operating Performance – Income statement Defines performance in terms of accrual net earnings – Statement of cash flow Defines performance in terms of operating cash flow Financial position – Balance sheet 10 Period of Time Point in Time Period of Time

Articulation of Financial Statements 11 Change in Shareholders’ Equity Common stock Retained Earnings Balance Sheet (End of Year) Income Statement Revenues – Expenses = Net income Balance Sheet (Beginning of Year) Statement of Cash Flow Dividends Change in Cash