1. Chapter 7: Financial Statements Chapter 7: Financial Statements

2. ©The McGraw-Hill Companies, Inc.2 of 29 Financial Statements In Chapter 7, you learn about Peachtree’s financial statements. Once journal entries have been recorded and posted, financial statements are automatically calculated by Peachtree. In Chapters 1 through 6, you explored the sample company, Bellwether Garden Supply. You learned how PCA’s graphical user interface works and how to navigate the software. You also journalized and posted various types of transactions. Beginning in Chapter 9, you will learn how to use these features to set up service businesses from scratch. Then, in Chapter 11, you will set up merchandising businesses from scratch. In the textbook, you set up 11 businesses which include service, merchandising, nonprofit, and manufacturing businesses.

3. ©The McGraw-Hill Companies, Inc.3 of 29 Software Objectives, p. 205 Restore data from Exercise 6-2. This back up was made on page 203. Explore Peachtree’s Help feature. Print the financial statements. Make an optional backup of Chapter 7. The backups that were made in Chapter 6 include the data for this chapter.

4. ©The McGraw-Hill Companies, Inc.4 of 29 Web Objectives, p. 205 Use your Internet browser to go to the book’s web site at www.mhhe.com/yacht2004 www.mhhe.com/yacht2004 Complete the Internet activity for Peachtree Software. Complete the steps shown for this activity.

5. ©The McGraw-Hill Companies, Inc.5 of 29 Financial Statements, pp. 205-206 In this chapter, you learn about PCA’s financial statements. Once journal entries have been recorded and posted, Peachtree automatically calculates financial statements. Since business managers and owners have the primary responsibility for the organization, they depend on accounting information in the form of financial statements to understand what is happening.

6. ©The McGraw-Hill Companies, Inc.6 of 29 Balance Sheet, p. 206 A balance sheet is a list of assets, liabilities, and capital of a business entity as of a specific date, such as the last day of an accounting period or the last day of the year.

7. ©The McGraw-Hill Companies, Inc.7 of 29 Gross Profit by Departments, p. 206 A departmentalized accounting system provides information that management can use to evaluate the profitability or cost effectiveness of a department’s activities. The Gross Profit by Departments financial statement is a custom report designed for Bellwether that details each department’s year-to-date gross profit as of the current month.

8. ©The McGraw-Hill Companies, Inc.8 of 29 Income Statement, p. 207 The income statement is a summary of the revenues and expenses a company accrues over a period of time, such as an accounting period or a year. Only revenue and expense accounts are displayed on the income statement. In addition to dollar figures, Peachtree’s income statement also includes percentage-of-revenue columns for the current month. The percentages shown for each expense, total expenses, and net income (or net loss) indicate the relationship of each item to total revenues.

9. ©The McGraw-Hill Companies, Inc.9 of 29 Statement of Cash Flow, p. 207 The cash flow from operations is roughly the same as income from operations plus depreciation, depletion, and adjusted for any other operating transactions that had no effect on cash during the period. The statement of cash flow also reports cash transactions associated with the purchase or sale of fixed assets (Investing Activities) and cash paid to or received from creditors and owners (Financial Activities).

10. ©The McGraw-Hill Companies, Inc.10 of 29 Statement of Retained Earnings, p. 207 The statement of retained earnings shows beginning and ending retained earnings amounts, adjustments made to retained earnings within the report period, and the detail for all Equity-get closed accounts. The retained earnings balance is the cumulative, lifetime earnings of the company less its cumulative losses and dividends.

11. ©The McGraw-Hill Companies, Inc.11 of 29 Statement of Changes in Financial Position, p. 208 The statement of changes describes changes in a company’s financial position that may not be obvious from other financial statements.

12. ©The McGraw-Hill Companies, Inc.12 of 29 Interrelationship of Financial Statements, p. 208 No single financial statement tells the entire story. The income statement indicates how much revenue a business has earned during a specific period of time, but it says nothing about how much of that amount has or has not been received in cash. For information about cash and accounts receivable, you have to look at the balance sheet, statement of cash flow, and statement of changes in financial position.

13. ©The McGraw-Hill Companies, Inc.13 of 29 Peachtree Tip Peachtree Tip Since you backed up all the data necessary for the financial statements in Chapter 6, there is no need to back up again in Chapter 7. The Exercise 6-2 back up should be saved for use with Chapters 15, 17, and 18.

14. ©The McGraw-Hill Companies, Inc.14 of 29 Backing Up Chapter 7* Backup Name KB Page No. A:\Chapter 7 1,251 KB 203 * The Chapter 7 backup is optional. All the data for Chapter 7 is stored on the Exercise 6-2.ptb backup that was made on page 203.

15. ©The McGraw-Hill Companies, Inc.15 of 29 Chapter 7 Topics 1. Software & web objectives, p. 205 2. Financial Statements, pp. 205-206 a. Balance Sheet, p. 206 b. Gross Profit by Department, p. 207 c. Income Statement, p. 207 d. Statement of Cash Flow, p. 207 e.Statement of Retained Earnings, pp. 207- 208 f. Statement of Changes in Financial Position, p. 209 g. Interrelationship of Financial Statements, p. 208

16. ©The McGraw-Hill Companies, Inc.16 of 29 Chapter 7 Topics 4. Getting Started, pp. 209-210 5. Using Peachtree’s Help Feature, pp. 210-212 6. Printing the Financial Statements, pp. 213-221 7. Backing up Chapter 7 data (Optional Backup), pp. 221-222 8. Internet activity, p. 222 8. Summary and Review, pp. 222-223 a.Going to the net, p. 223 b. True/make true questions, pp. 223-225 c. Exercise 7-1, p. 226 d. Exercise 7-2, p. 226 e. Chapter 7 index, p. 227

17. ©The McGraw-Hill Companies, Inc.17 of 29 Peachtree Help window, pp. 210 Peachtree Help window, pp. 210 Click on Help, Contents and Index. If necessary, click on the Index tab.

18. ©The McGraw-Hill Companies, Inc.18 of 29 Peachtree Help (continued), p. 211 Click on the Type in the keyword to find field. Type balance sheet. Click on the button. Click on Post to save this invoice. Then, return to the menu bar.

19. ©The McGraw-Hill Companies, Inc.19 of 29 Peachtree Help (concluded), p. 212 The right pane shows information about the balance sheet. Read steps 5 and 6 on page 212. Then, close the windows to return to the menu bar. Click on Post to save this invoice. Then, return to the menu bar.

20. ©The McGraw-Hill Companies, Inc.20 of 29 Printing Financial Statements, p. 213 Click on Reports, Financial Statements. The Balance Sheet is highlighted. Standard refers to statements that Peachtree has already set up. Click on the Print icon. Then, click on OK two times. The balance sheet starts to print. Compare it with the one shown on pp. 214-215. Click on the Print icon. Then, click on OK two times. The Gross Profit by Departments report prints. Compare it with the one shown on p. 213. Close the windows to return to the menu bar.

21. ©The McGraw-Hill Companies, Inc.21 of 29 Gross Profit by Departments, pp. 215-216 From the Select a Report window, highlight Gross Profit by Departments. Click on the Print icon. Then, click on OK two times. The Gross Profit by Departments report prints. Compare it with the one shown on p. 216. Close the windows to return to the menu bar.

22. ©The McGraw-Hill Companies, Inc.22 of 29 Income Statement, p. 217 Income Statement, p. 217 From the Select a Report window, highlight Income Statement. Make the selections to print. Compare your income statement with the one shown on p. 218. Close the windows to return to the menu bar.

23. ©The McGraw-Hill Companies, Inc.23 of 29 Statement of Cash Flow, p. 219 Follow the steps on page 219 to print a statement of cash flow. Compare your statement of cash flow to the one shown on page 219. Close the windows to return to the menu bar.

24. ©The McGraw-Hill Companies, Inc.24 of 29 Statement of Retained Earnings and Statement of Changes in Financial Position, pp. 220-222 Follow the steps on page 220 to print a statement of retained earnings. Compare your statement to the one shown on p. 220. Follow the steps on page 221 to print a statement of changes in financial position. Compare your statement of changes in financial position to the one shown on page 222. Click on the Print icon. Then, click on OK two times. The Gross Profit by Departments report prints. Compare it with the one shown on p. 213. Close the windows to return to the menu bar.

25. ©The McGraw-Hill Companies, Inc.25 of 29 Glossary of Terms Chapter 7

26. ©The McGraw-Hill Companies, Inc.26 of 29 Net Income, p. 207 A net income results when revenues exceed expenses.

27. ©The McGraw-Hill Companies, Inc.27 of 29 Net loss, p. 207 A net loss results when expenses exceed revenues.

28. ©The McGraw-Hill Companies, Inc.28 of 29 Internet Activity, p. 222 1 Go to the book’s web site at www.mhhe.com/yacht2004 www.mhhe.com/yacht2004 2 In the Student Center list, link to Internet Activities. 3 Link to WEB EXERCISES PART 1. 4 Scroll down the screen to PEACHTREE SOFTWARE – Chapter 7 Read steps 1 and 2. 5 Follow the steps shown on the books web site to complete the Internet activity. 6 Use a word processing program to write a summary for each web site visited. Your summaries should be no more than 75 words.

29. ©The McGraw-Hill Companies, Inc.29 of 29 Going to the Net, p. 223 Access the article How to Read a Balance Sheet: Introduction at www.fool.com/school/valuation/howtoreadabalancesheet.htm www.fool.com/school/valuation/howtoreadabalancesheet.htm 1. What are liquid assets? 2. What are the liquid assets called on the balance sheet? 3. In the How to Read a Balance Sheet: Introduction list, link to two other sites. Define each link; include the website addresses in your answer.