1. FINANCIAL STATEMENTS Partnerships prepare 4 financial statements: 1.Income Statement 2.Balance Sheet 3.Distribution of Net Income/Loss Statement 4.Owner’s Equity Statement

2. Income Statement - Calculations Sales - Cost of Merchandise Sold = Gross Profit on SALES (Profit BEFORE other expenses) Gross Profit on Sales - Expenses = Net Income ($ you actually KEEP) 2/6

3. Inventory left over from last year (Trial Balance Merchandise Inventory) + What you purchased this year (Purchases) = Total inventory you had available this year - Total inventory you had available this year (Balance Sheet Merchandise Inventory) = What you sold Cost of Merchandise Sold

4. FIRST TWO SECTIONS OF AN INCOME STATEMENT FOR A MERCHANDISING BUSINESS Lesson 16-1, page 401 4/6 1 3 2 3.Prepare the merchandise sold section. 1. Write the income statement heading on three lines. 2.Prepare the revenue section. + - =

5. INCOME STATEMENT INFORMATION ON A WORK SHEET Beginning ------------------------------  End

6. 5.Prepare the expenses section. COMPLETING AN INCOME STATEMENT FOR A MERCHANDISING BUSINESS Lesson 16-1, page 402 6/6 8 4 6 7 5 6.Calculate the net income. 4. Calculate the gross profit on sales. 7.Rule double lines. 8.Calculate the component percentages. 423120 205800  423120 48.6 217320  423120 51.4 147704.15 423120  423120 34.9 69615.85  423120 16.5 34.9 + 16.5 = 51.4 + - =

7. COMPONENT PERCENTAGES n Every sales dollar reported on the income statement includes 4 pieces: 1.Cost of Merchandise sold (aka cost of goods sold or cost of sales) 2.Gross Profit on Sales 3.Total Expenses 4.Net Income Lesson 16-1, page 402 1/4

8. ANALYZING AN INCOME STATEMENT SHOWING A NET INCOME AcceptableOmni Import IndustryComponent StandardsPercentages Sales100%100.0% Cost of merchandise soldnot more than 50.0%48.6% Gross profit on salesnot less than 50.0%51.4% Total expensesnot more than 35.0%34.9% Net incomenot less than 15.0%16.5% Lesson 16-2, page 405 2/4 Have to know this in order for these numbers to have meaning

9. ANALYZING AN INCOME STATEMENT SHOWING A NET LOSS (Unacceptable) Lesson 16-2, page 407 3/4 more than max of 50% less than min of 50% more than max of 35% lost 2.1 cents on every dollar

10. ACTIONS TO CORRECT UNACCEPTABLE COMPONENT PERCENTAGES -When component percentages are unacceptable, regardless of whether a net income or net loss occurred, management action is necessary Unacceptable Gross Profit on Sales requires 1 of 3: 1)increase sales revenue 2)decrease cost of goods sold 3)both of the above cons? Unacceptable Expenses requires a review of each expense account – reduce as much as possible Net Income should work itself out if the others are good Lesson 16-2, page 408 4/4

11. PREPARING A DISTRIBUTION OF NET INCOME STATEMENT Lesson 16-3, page 410 1/5 5 1 3 4 2 3.First Partner’s Share of Net Income 1. Heading 4.Second Partner’s Name 2.First Partner’s Name 5.Second Partner’s Share of Net Income 6. Net Income 7.Total Net Income 8.Double Lines (after verifying w/IS) 6 7 8 whatever was agreed upon 69,615.85 x.50 = 34,807.93

12. DISTRIBUTION OF NET INCOME STATEMENT WITH UNEQUAL DISTRIBUTION OF EARNINGS Lesson 16-3, page 411 2/5 81,600 x.60 = 48,960 81,600 x.40 = 32,640

13. PARTNERS’ CAPITAL AND DRAWING ACCOUNTS Owners are interested in net income as well as any changes to Owner’s equity that occur within a fiscal period 3 factors can change owner’s equity: 1)Additional Investments 2)Withdrawals 3)Net Income or Net Loss Summarized on an Owner’s Equity Statement is OE increasing? decreasing? why? Lesson 16-3, page 412 3/5

14. UPDATING OWNERS’ CAPITAL ACCOUNTS Your share of this year’s profits -What you have withdrawn (Drawing) =Your share of what you are leaving invested (grow company) What you had invested before + Your share of what you are leaving invested (grow company) New Capital 4/5

15. OWNERS’ EQUITY STATEMENT Lesson 16-3, page 413 5/5 1 4 2 3.First Partner’s Ending Capital 1. Heading 4.Second Partner’s Name 2.First Partner’s Name 5.Second Partner’s Ending Capital 6. Total Owners’ Equity 7. Double Lines 6 7 35 TotalsAmounts Sub Totals Children Should Learn Not (2) Cry Children Should Learn Not (2) Cry -

16. BALANCE SHEET INFORMATION Lesson 16-4, page 416 1/3 - reports a business’s financial condition on a specific date (A=L+OE) Assets Liabilities Owner’s Equity

17. FIRST TWO SECTIONS OF A BALANCE SHEET FOR A MERCHANDISING BUSINESS 1 3 2 3.Prepare the liabilities section. 1. Prepare the heading. 2.Prepare the assets section. Lesson 16-4, page 417 2/3

18. 5.Total the liabilities and owners’ equity sections. COMPLETING A BALANCE SHEET FOR A MERCHANDISING BUSINESS 4 6.Verify the accuracy by comparing totals. 4. Prepare the owners’ equity section. 7.Rule double lines. 5 6 7 7 Lesson 16-4, page 418 3/3