1. © 2015 Cengage Learning. All Rights Reserved.
LESSON
4-3
Financial Statements
for a Departmental
Merchandising Business
Learning Objectives
LO8 Prepare financial statements for a departmentalized merchandising business.
© 2015 Cengage Learning. All Rights Reserved.

2. Income Statement with Departmental Margin
Lesson 4-3
Income Statement with Departmental Margin
LO8
A financial statement showing the revenue and expenses for a fiscal period is called an income statement.
Statement
Heading
Info from Departmental Margin Statement
Indirect Expenses from Adjusted Trial Balance
Income Taxes & Net Income
Vertical Analysis Ratios
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3. Statement of Stockholders’ Equity
Lesson 4-3
Statement of Stockholders’ Equity
LO8
A financial statement that shows changes in a corporation’s ownership for a fiscal period is called a statement of stockholders’ equity.
Earnings distributed to stockholders are called dividends.
A statement of stockholders’ equity contains two major sections:
1. Capital stock. Total shares of ownership in a corporation are called capital stock.
2. Retained earnings. An amount earned by a corporation and not yet distributed to stockholders is called retained earnings.
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4. Statement of Stockholders’ Equity
Lesson 4-3
Statement of Stockholders’ Equity
LO8 1 2 3 4 5
1. Write the heading.
4. Complete the retained earnings section.
2. Prepare the capital stock section.
5. Add capital stock and ending retained earnings to determine the ending total stockholders’ equity.
3. Enter the beginning balance of retained earnings.
© 2015 Cengage Learning. All Rights Reserved.

5. © 2015 Cengage Learning. All Rights Reserved.
Lesson 4-3
Balance Sheet
LO5
A financial statement that reports assets, liabilities, and owners’ equity on a specific date is called a balance sheet.
Asset and liability data come from the adjusted trial balance.
Data for the stockholders’ equity come from the statement of stockholders’ equity.
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6. Statement of Cash Flows
Lesson 4-3
Statement of Cash Flows
LO8
The cash receipts and cash payments of a company are called cash flow.
A financial statement that summarizes cash receipts and cash payments resulting from business activities during a fiscal period is called a statement of cash flows.
The cash flow statement is divided into three sections of activities.
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7. Statement of Cash Flows
Lesson 4-3
Statement of Cash Flows
LO8
The cash receipts and payments necessary to operate a business on a day-to-day basis are called operating activities.
Cash receipts and cash payments involving the sale or purchase of assets used to earn revenue over a period of time are called investing activities.
Cash receipts and payments involving debt or equity transactions are called financing activities.
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8. Lesson 4-3 Audit Your Understanding
1. Where does Whiley obtain the information to prepare the indirect expenses section of the income statement?
ANSWER
Account titles and balances are obtained from the adjusted trial balance.
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9. Lesson 4-3 Audit Your Understanding
2. From where is the information to prepare the direct expenses section of the income statement obtained?
ANSWER
Totals are obtained from the departmental margin statements.
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10. Lesson 4-3 Audit Your Understanding
Where does Whiley obtain the stockholders’ equity amounts reported on the balance sheet?
ANSWER
The totals of capital stock and retained earnings are obtained from the statement of stockholders’ equity.
© 2015 Cengage Learning. All Rights Reserved.