module 3 constructing financial statements and analyzing transactions
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Module 3: Constructing Financial Statements and Analyzing Transactions

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Module 3: Constructing Financial Statements and Analyzing Transactions. The Accounting Cycle. T-Accounts and Journal Entries. Cash Dividends.

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Presentation Transcript
cash dividends
Cash Dividends
  • All transactions between the company and its shareholders are considered financing transactions. This includes payment of dividends, the issuance of stock, and any subsequent stock repurchase.
  • Financing transactions affect only the balance sheet; they do not affect the income statement.
types of adjustments
Types of Adjustments
  • Cash received or paid before recognition of revenue or expense:
    • Prepaid expenses
    • Unearned revenues
  • Cash received or paid after recognition of revenue or expense
    • Accrued expenses
    • Accrued revenues
prepaid expenses assets
Prepaid Expenses (Assets)
  • Assume that Apple pays $200 to purchase time on MTV for future iPod ads. Apple’s cash account decreases by $200, and an asset called prepaid advertising increases by the same amount.
unearned revenues liabilities
Unearned Revenues (Liabilities)
  • Assume that Apple receives $400 cash from a customer as advance payment on a multi-unit iPod sale to be delivered next month.
recognition of unearned revenue as earned revenue
Recognition of Unearned Revenue as Earned Revenue
  • Assume that Apple delivers the iPods a month later (but still within the fiscal quarter).
accrued expenses liabilities
Accrued Expenses (Liabilities)
  • Assume that Apple’s sales staff earns $100 of sales commissions this period that will not be paid until next period.
accrued revenues assets
Accrued Revenues (Assets)
  • Assume that Apple delivers iPods to a customer in Germany who will pay next quarter. The sales price for those units is $500 and the cost is $400.
slide12

Unadjusted

Trial Balance

(not 100% Accrual Basis)

Adjusting

Entries

Adjusted

Trial Balance

(100% Accrual Basis)

Create

Financial Statements

I/S

B/S

SCF

SE

Apple’s transactions thus far …

trial balance
Trial Balance
  • The trial balance is a listing of all accounts and their balances at a point in time.
  • Its purpose is to prove the mathematical equality of debits and credits, provide a useful tool to uncover any accounting errors, and help prepare the financial statements.
preparation of the financial statements1
Preparation of the Financial Statements
  • Retained Earnings Computation
preparation of the financial statements3
Preparation of the Financial Statements
  • Statement of Stockholders’ Equity
preparation of the financial statements4
Preparation of the Financial Statements
  • Statement of Cash Flows (from cash column)
cash generated used from changes in balance sheet accounts

ASSET

A/R

Beg balance xx

xxx Cash Collections

Credit Sales xxx

Ending balance xx

Cash Generated (Used) from changes in Balance Sheet Accounts

Cash Basis #

Accrual Basis #

cash generated used from changes in balance sheet accounts1
Cash Generated (Used) from changes in Balance Sheet Accounts

LIABLITY

A/P

xx Beg balance

Cash Basis #

Accrual Basis #

Cash Payments xxx

xxx Purchases on Credit

xx Ending balance

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