Financial Statements. Direct vs Indirect Costs Direct Material Direct Labor Indirect Material/Labor...
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Transcript of Financial Statements. Direct vs Indirect Costs Direct Material Direct Labor Indirect Material/Labor...
Financial Financial StatementsStatements
Direct vs Indirect Direct vs Indirect CostsCosts
Direct Material
Direct Labor
Indirect Material/Labor
Fixed
General/Admin
Selling
Profit
Conversioncost
SellingPrice
Primecosts
Factory Overhead
Costof goods
manufactured
Costof goods
sold
TermsTerms Bookkeeping
accumulate the results of an entities financial activities
Financial Accountingexternal evaluation of financial statements of an entity
Managerial Accountinguse of economic & financial information to plan and control activities of an entity
Cost Accountingdetermines product, process, or service costs; a subset of managerial accounting
TermsTerms
Tax Accountingthe preperation of income tax returns as a specialized field within accounting - tax planning
Auditingexternal review and evaluation of an entitys’s financial records and health
internal auditsgovernment auditsIRS audits
Functions of Functions of AccountingAccounting
Internal Controlall measures used by an organization to guard against errors, waste and fraud
Audits of Financial Statementsinvestigation of a company’s financial statements to determine the fairness of these statements
Annual Reportscomparative financial statements enable user’s to identify trends in the company’s performance and financial position
Principles of Principles of AccountingAccounting
Principles of accounting dictate that financial statements must show financial position at end of accounting
period earnings for the accounting period cash flows during that period investments by & distribution to
owners
Transactions Transactions ApproachApproach
In recording economic activities, accountants focus on completed transactions - those that cause an immediate change in the financial resources or obligations of a company purchasing raw materials sales of finished goods
Strength - the reliability of the information that is recorded, based on past events, objectivity
Financial StatementsFinancial Statements Balance Sheet
financial position of a company indicating resources it owns, debts, and the amount of owner’s equity
Income Statementprofitability of the business over the preceeding accounting period
Statement of Owner’s Equityexplains changes in the amount of owner’s equity in the business
Statement of Cash Flowssummarizes cash receipts and cash payments of business over the preceeding accounting period
Balance SheetBalance Sheet Statement of financial position does not show the current market value of an
entity’s assests Assets
economic resources owned by a business and are expected to benefit future operations cost principle going concern objectivity principle stable dollar assumption
Current Assets - convertible to cash within 1 yr.
Balance SheetBalance Sheet Liabilities
probable future sacrifices of economic benefits as result of current obligationsCurrent Liabilities - must be paid within 1 yr.
Owner Equityownership right of proprietors or stockholdersChanges in OE by investment by owner earnings from profitable operation of business withdrawals of cash of other assets losses from business
Accounting EquationAccounting Equation
Owner Equity = Assets - Liabilities
K-Corp Consolidated Balance1997 1996
Current Assets Cash $22,300 $16,800 Accounts Receivable 46,800 38,600 Inventories 54,200 48,200 Total Current Assets $123,300 $103,600Other Assets Land 100,000 100,000 Building 85,400 94,600 Equipment 78,400 85,600
Total Assets $387,100 $383,800
Current Liabilities Accounts Payable $62,400 $55,600
Notes 5,000 20,000Total Current Liabilities $67,400 $75,600 Mortgage 125,800 132,300Total Liabilities $193,200 $207,900Owner's Equity Paid In Capital 100,000 100,000 Retained Earnings 93,900 75,900Total Liabilities & Owner Equity $387,100 $383,800
Income StatementIncome Statement Projects profit/loss of an entity over a period of
time Net Sales - gross sales less returns, defects,
etc. Cost-of-Goods sold - cost of raw material &
direct labor Selling, Gen, Admin - operating expenses of
an entity which do not directly contribute to product (sales people, managers, ...)
Interest Expense - interest paid on long/short term debt.
Net Income/share - net income (after tax) divided by outstanding shares
K-Corp Income Statement
Net Sales $574,800Cost of Goods Sold 428,300Gross Margin 146,500Operating Expenses Sales Expenses 87,400 Depreciation Equip 7,200 Depreciation Bldg 9,200 Administrative 14,500 Utilities 4,600
Total Operating $122,900Income from Operations 23,600Taxes 5,600Net Income $18,000
Changes to Owner Changes to Owner EquityEquity
Begin Balance - last year’s ending balance Paid-in Capital - sold 10,000 shares at $19 /share
stock par value of $10 / share.common stock = 10,000 x $10 =
$100,000addition paid in =10,000 x ($19-$10) = $
90,000 Retained Earnings - cumulative net income which
has been retained for business Dividends - distribution of earnings to stockholders
Changes to Owner Changes to Owner EquityEquity
Balance Sheet Income Statement Balance Sheet
8/31/96 Revenues 8/31/97 - Expenses Net Income
Statement of OEA =L +OE Begin Balance
Paid in capital changes Retained earnings + Net Income - Dividends Ending Balances A = L + OE
K-Corp Income Statement
Net Sales $574,800Cost of Goods Sold 428,300Gross Margin 146,500Operating Expenses Sales Expenses 87,400 Depreciation Equip 7,200 Depreciation Bldg 9,200 Administrative 14,500 Utilities 4,600
Total Operating $122,900Income from Operations 23,600Taxes 5,600Net Income $18,000
Retained (97) = Retained (96) + $18,000 = $93,900
K-Corp Consolidated Balance1997 1996
Current Assets Cash $22,300 $16,800 Accounts Receivable 46,800 38,600 Inventories 54,200 48,200 Total Current Assets $123,300 $103,600Other Assets Land 100,000 100,000 Building 85,400 94,600 Equipment 78,400 85,600
Total Assets $387,100 $383,800
Current Liabilities Accounts Payable $62,400 $55,600
Notes 5,000 20,000Total Current Liabilities $67,400 $75,600 Mortgage 125,800 132,300Total Liabilities $193,200 $207,900Owner's Equity Paid In Capital 100,000 100,000 Retained Earnings 93,900 75,900Total Liabilities & Owner Equity $387,100 $383,800
Statement of Cash Statement of Cash FlowsFlows
Identify the sources and use of cash during year
Operating Activities net income $18,000 from income
statement depreciation expense $16,400 from
balance sheet added back in because it is not an actual cash outlay
K-Corp Cash Flows
Net Income $18,000Add (deduct) items Depreciation Exp 16,400 Increase in Accts Rec. -8,200 Increase in Invent. -6,000 Increase in Accts. Pay 6,800 Increase in Notes Pay -15,000Net Cash from Operations $12,000Cash from Investing 0
Cash from Financing Retire long term dept -6,500 Issue of long term dept 0 Sale of common stock 0
Payment of Dividends 0Net Increase in Cash $5,500
K-Corp Cash Flows
Net Income $18,000Add (deduct) items Depreciation Exp 16,400 Increase in Accts Rec. -8,200 Increase in Invent. -6,000 Increase in Accts. Pay 6,800 Increase in Notes Pay -15,000Net Cash from Operations $12,000Cash from Investing 0
Cash from Financing Retire long term dept -6,500 Issue of long term dept 0 Sale of common stock 0
Payment of Dividends 0Net Increase in Cash $5,500
K-Corp Consolidated Balance1997 1996
Current Assets Cash $22,300 $16,800 Accounts Receivable 46,800 38,600 Inventories 54,200 48,200 Total Current Assets $123,300 $103,600Other Assets Land 100,000 100,000 Building 85,400 94,600 Equipment 78,400 85,600
Total Assets $387,100 $383,800
Current Liabilities Accounts Payable $62,400 $55,600
Notes 5,000 20,000Total Current Liabilities $67,400 $75,600 Mortgage 125,800 132,300Total Liabilities $193,200 $207,900Owner's Equity Paid In Capital 100,000 100,000 Retained Earnings 93,900 75,900Total Liabilities & Owner Equity $387,100 $383,800
K-Corp Pro-Forma Cash Flows
Cash Flows from Ops. Feb Mar Apr May JunNet Income $250 $500 $600 $750 $900 Depreciation 50 50 50 50 50 Increase in Receivables 0 (250) (475) (600) (900) Increase in Inventory (10) (100) (300) (500) (900) Increase in Current Liab 50 75 100 150 180Net Increase/Decrease $340 $275 ($25) ($150) ($670)
Beginning Cash 250 590 865 840 690
Ending Cash $590 $865 $840 $690 $20
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