1. Let’s analyze some transactions for JJ’s Lawn Care Service.
Let’s look at how specific business transactions impact the basic financial statement.

2. On May 1, Jill Jones and her family invested $8,000 in JJ’s Lawn Care Service and received 800 shares of stock.
Part I On May 1st, Jill Jones and her family invested $8,000 in JJ’s Lawn Care Service and received 800 shares of stock in return. Let’s see how the balance sheet would look immediately after this transaction.
Part II
The cash account of JJ’s Lawn Care increased by eight thousand dollars and the capital stock of the company also increased by eight thousand dollars. Notice that the basic accounting equation is in balance. Total assets are equal to total liabilities plus owners’ equity. 3

3. On May 2, JJ’s purchased a riding lawn mower for $2,500 cash.
Part I
On the 2nd of May, JJ’s Lawn Care purchased a riding lawn mower for $2,500 cash. Let’s see how the balance sheet looks now. Part II The cash account has been reduced by the $2,500 spent and the tools and equipment account has been increased by the same amount. One asset, cash, was merely traded for another, the riding lawn mower. Owners’ equity is not changed by the transaction and the basic accounting equation is still in balance. 3

4. On May 8, JJ’s purchased a $15,000 truck.
JJ’s paid $2,000 down in cash and issued a note payable for the remaining $13,000.
Part I
In the next transaction JJ’s Lawn Care purchases a truck for $15,000, paying $2,000 cash and signing a note payable for $13,000. Let’s update the balance sheet. Part II The cash account decreased by $2,000 and the truck account increased by $15,000. There was a net increase in the asset side of the equation of $13,000. The liability account, notes payable, increased by $13, Total assets are now equal to $21,000. Total liabilities are equal to $13,000 and owners’ equity is equal to $8,000. The accounting equation is still in balance. 3

5. On May 11, JJ’s purchased some repair parts for $300 on account.
Part I On May 11th, JJ’s Lawn Care purchases repair parts for the riding lawn mower for $300. The parts are purchased on account. JJ’s will pay the balance on the account at some point in the future. Let’s update the balance sheet. Part II
The tools and equipment account increased by $300 and the liability account, accounts payable, increased by the same amount. The balance sheet is getting progressively more complicated. 3

6. Jill realized she had purchased more repair parts than needed.
On May 18, JJ’s was able to sell half of the repair parts to ABC Lawns for $150, a price equal to JJ’s cost. JJ’s will receive the cash within 30 days.
Part I
On May 18th, JJ’s Lawn Care sells one-half of its repair parts at cost to ABC Lawns. ABC agrees to pay for the parts in thirty days. One-half of the cost of the parts is $150. Can you update the balance sheet? Try before proceeding to the next slide.
Part II The asset account, Tools and Equipment, decreased by $150 and the asset account, accounts receivable, increased by the same amount. Once again, one asset, repair parts, has been exchanged for another asset, accounts receivable. How did you do? 3

7. On May 25, ABC Lawns pays JJ’s $75 as a partial settlement of its accounts receivable.
On May 25th, ABC Lawns makes a partial payment on account for $75 cash. Let’s prepare the updated balance sheet on May 25th. Part II The cash account increases by $75 and accounts receivable decreases by the same amount. Notice that total assets are still equal to total liabilities plus owners’ equity. 3

8. On May 28, JJ’s pays $150 of its accounts payable.
Part I On May 28th, JJ’s Lawn Care makes a partial payment on its accounts payable of $150. Its time to update the balance sheet. Part II The cash account decreases by $150 and accounts payable also decreases by $150. The total assets are now recorded at $21,150. Total liabilities plus owners’ equity is equal to the same amount. 3

9. On May 29, JJ’s recorded lawn care services provided during May of $750. All clients were paid in cash.
Part I
On May 29th, JJ’s Lawn Care begins providing services to customers. On this date the company did work that totaled $750. All of the customers paid cash for the services rendered. Try updating the balance sheet before moving to the next slide. Be careful with this one.
Part II The cash account increases by $750 and retained earnings increases by the same amount. The monies received represent earnings of the company that have been retained. The $750 represents revenue earned by the business. How did you do? 3

10. On May 31, JJ’s purchased gasoline for the lawn mower and the truck for $50 cash.
Part I
In the final transaction for May, JJ’s Lawn Care purchased $50 worth of gasoline for its riding mower and truck. Let’s make the final update to the balance sheet on May 31st. Part II The cash account decreased by $50 and so did the retained earnings of the company. JJ’s Lawn Care used $50 of its earnings to pay for the gasoline. The $50 spent is an expense of the business.
Now, let’s review how JJ’s transactions affected the accounting equation. 3

11. All of these transactions have been placed on this slide, in the appropriate columns for the accounts they’ve impacted. Let’s verify the balance in each account and get ready to prepare the financial statements for JJ’s Lawn Care. 3

12. These transactions impact the Statement of Cash Flows.
Let’s prepare the Income Statement and Statement of Cash Flows for JJ’s Lawn Care Service for the month ending May 31, 2007.
These transactions impact the Statement of Cash Flows.
Part I All of the transactions that impacted the cash account will appear on the statement of cash flows. Part II The revenues and expenses that caused the change in retained earnings will appear on the income statement of the company. Part II Let’s begin by preparing the income statement and statement of cash flows for JJ’s Lawn Care for the period ended May 31, 2007.
These transactions impact the Income Statement. 3

13. Part I JJ’s Lawn care has one revenue for services for $750, and one expense for gasoline of $50. So the net income for the month of May is $700. Remember, net income is the excess of revenues over expenses incurred during the accounting period. Part II Investments by owners and payments to owners do not appear on the income statement. These amounts appear on the company’s balance sheet.
Investments by and payments to the owners are not included on the Income Statement. 3

14. Here is the statement of cash flows for JJ’s Lawn Care for the month ended May 31, Notice the three sections of the statement. 3

15. Operating activities include the cash effects of revenue and expense transactions.
Cash flows from operating activities include the $700 in net income calculated on the previous screen. 3

16. JJ’s had a cash outflow for investing activities
JJ’s had a cash outflow for investing activities. The company invested in the riding lawn mower, truck, and repair parts; however, the company recovered some of the cost of repair parts by selling them to ABC Lawns.
Investing activities include the cash effects of purchasing and selling assets. 3

17. Financing activities include the cash effects of transactions with the owners and creditors.
The only financing activity was the original investment by the owners of JJ’s Lawn Care. The cash inflows and outflows resulted in an increase in cash of $4,125 during the month. Because the cash account had a zero balance at the beginning of the month, the ending balance in the cash account is $4,125. Let’s finish by preparing the balance sheet for JJ’s Lawn Care. 3

18. These balances will appear on the Balance Sheet.
Now, let’s prepare the Balance Sheet for JJ’s Lawn Care Service for May 31, 2007.
These balances will appear on the Balance Sheet.
Here are the account balances to use when preparing the balance sheet. 3

19. Assets = Liabilities + Owners’ Equity $21,850 = $13,150 + $8,700
Part I
Asset accounts are listed on the left side of the balance sheet and the liabilities and owners’ equity accounts on the right. Feel free to go back to the previous screen and see all the account balances that appear on the balance sheet. Part II As a final check, make sure that the accounting equation is still in balance. The total assets of $21,850 is exactly equal to the total of the company’s liabilities plus owners’ equity. Notice that the balance sheet lists all assets, liabilities, and equities on a certain date. In this example, the date is May 31, 2007.
Assets = Liabilities + Owners’ Equity
$21,850 = $13, $8,700 3

20. Relationships Among Financial Statements
Date at beginning of period
Date at end of period
Time
Balance Sheet
Balance Sheet
All the financial statements are interrelated. We can start with the balance sheet at the beginning of an accounting period, analyze the income and cash flows of the company, and arrive at the ending balances that will appear on the balance sheet. Let’s see how this works in the JJ’s Lawn Care example.
Income Statement
Statement of Cash Flows 3

21. Financial Statement Articulation
Part I
This is the balance sheet for JJ’s Lawn Care at the end of May.
Part II Net income impacts the retained earnings of the company. Part III
The statement of cash flows not only provides the balance in the cash account, but also details information about the acquisition and disposition of assets and liabilities as well as changes in the owners’ equity balance. It’s clear to see how all the financial statements articulate with each other. 3