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Chapter 2

Chapter 2. Reporting Investing & Financing Results on the Balance Sheet. Financing Activities Obtaining capital from outside sources Debt Equity Investing Activities Purchasing and selling. Financing Activities Obtaining capital from outside sources Debt (borrowing $) Equity

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Chapter 2

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  1. Chapter 2 Reporting Investing & Financing Results on the Balance Sheet

  2. Financing Activities Obtaining capital from outside sources • Debt • Equity Investing Activities Purchasing and selling

  3. Financing Activities Obtaining capital from outside sources • Debt (borrowing $) • Equity Investing Activities Purchasing and selling

  4. Financing Activities Obtaining capital from outside sources • Debt (borrowing $) • Equity (selling stock to owners/investors) Investing Activities Purchasing and selling

  5. Financing Activities Obtaining capital from outside sources • Debt (borrowing $) • Equity (selling stock to owners/investors) Investing Activities Purchasing and selling long-term assets

  6. Financing Activities Obtaining capital from outside sources • Debt (borrowing $) • Equity (selling stock to owners/investors) Investing Activities Purchasing and selling long-term assets (PP&E)

  7. Transactions Activities that affect the accounting equation • Analyze transaction • Record transaction • Summarize transaction

  8. Transactions Activities that affect the accounting equation • Analyze transaction – determine which • aspects of accounting equation are affected • accounts are affected • Record transaction • Summarize transaction

  9. Transactions Activities that affect the accounting equation • Analyze transaction – determine which • aspects of accounting equation are affected • accounts are affected • Record transaction – prepare journal entries • Summarize transaction – post to ledger

  10. Transactions Activities that affect the accounting equation • Analyze transaction – determine which • aspects of accounting equation are affected • accounts are affected • Record transaction – prepare journal entries • Summarize transaction – post to ledger (T-Accts)

  11. Analyzing Financial Statements We’ll come back to this section

  12. Jim’s Lawn Care • Jim Hamilton began a lawn care business in May by selling $12,000 of capital stock • Purchased lawnmower on account, $3,000 • Purchased a truck and trailer with cash, $8,000 • Purchased equipment for $2,500, making a $750 downpayment • Borrowed $15,000 from the bank, due in 3 yrs • Ordered office supplies, $300 • Paid $3,000 cash for the lawn equipment purchased in #2 • Received office supplies ordered in #6 (not paying for it yet….)

  13. Analyzing the Transactions Jim began a lawn care business in May by selling $12,000 of capital stock Assets = Liabilities + Stockholder’s Equity Cash Capital Stock

  14. Analyzing the Transactions Jim began a lawn care business in May by selling $12,000 of capital stock Assets = Liabilities + Stockholder’s Equity Cash Capital Stock 12,000

  15. Analyzing the Transactions Jim began a lawn care business in May by selling $12,000 of capital stock Assets = Liabilities + Stockholder’s Equity Cash Capital Stock 12,000 12,000

  16. Analyzing the Transactions Jim began a lawn care business in May by selling $12,000 of capital stock Assets = Liabilities + Stockholder’s Equity Cash = Capital Stock 12,000 12,000

  17. Analyzing the Transactions Jim began a lawn care business in May by selling $12,000 of capital stock Assets = Liabilities + Stockholder’s Equity Cash = Capital Stock 12,000 12,000

  18. Analyzing the Transactions 2. Purchased lawnmower on account, $3,000 Assets = Liabilities + Stockholder’s Equity Equipment A/P

  19. Analyzing the Transactions 2. Purchased lawnmower on account, $3,000 Assets = Liabilities + Stockholder’s Equity Equipment A/P 3,000 3,000

  20. Analyzing the Transactions 2. Purchased lawnmower on account, $3,000 Assets = Liabilities + Stockholder’s Equity Equipment = A/P 3,000 3,000

  21. Analyzing the Transactions 3. Purchased a truck and trailer with cash, $8,000 Assets = Liabilities + Stockholder’s Equity Equipment Cash

  22. Analyzing the Transactions 3. Purchased a truck and trailer with cash, $8,000 Assets = Liabilities + Stockholder’s Equity Equipment 8,000 Cash 8,000

  23. Analyzing the Transactions 3. Purchased a truck and trailer with cash, $8,000 Assets = Liabilities + Stockholder’s Equity Equipment 8,000 nets to zero Cash 8,000

  24. Analyzing the Transactions 4. Purchased equipment for $2,500, making a $750 downpayment Assets = Liabilities + Stockholder’s Equity Equipment A/P Cash

  25. Analyzing the Transactions 4. Purchased equipment for $2,500, making a $750 downpayment Assets = Liabilities + Stockholder’s Equity Equipment A/P 2,500 Cash

  26. Analyzing the Transactions 4. Purchased equipment for $2,500, making a $750 downpayment Assets = Liabilities + Stockholder’s Equity Equipment A/P 2,500 Cash 750

  27. Analyzing the Transactions 4. Purchased equipment for $2,500, making a $750 downpayment Assets = Liabilities + Stockholder’s Equity Equipment A/P 2,500 1,750 Cash 750

  28. Analyzing the Transactions 4. Purchased equipment for $2,500, making a $750 downpayment Assets = Liabilities + Stockholder’s Equity Equipment A/P 2,500 = 1,750 Cash 750

  29. Analyzing the Transactions 5. Borrowed $15,000 from the bank due in 3 yr Assets = Liabilities + Stockholder’s Equity

  30. Analyzing the Transactions 5. Borrowed $15,000 from the bank due in 3 yr Assets = Liabilities + Stockholder’s Equity Cash N/P

  31. Analyzing the Transactions 5. Borrowed $15,000 from the bank due in 3 yr Assets = Liabilities + Stockholder’s Equity Cash = N/P 15,000 15,000

  32. Analyzing the Transactions 6. Ordered office supplies, $300 Assets = Liabilities + Stockholder’s Equity No “transaction”

  33. Analyzing the Transactions 7. Paid $3,000 cash for the lawn equipment purchased in #2 Assets = Liabilities + Stockholder’s Equity Cash A/P

  34. Analyzing the Transactions 7. Paid $3,000 cash for the lawn equipment purchased in #2 Assets = Liabilities + Stockholder’s Equity Cash = A/P 3,000 3,000

  35. Analyzing the Transactions 8. Received office supplies ordered in #6 (not paying for it yet….) Assets = Liabilities + Stockholder’s Equity Supplies = A/P 300 300

  36. Rules of Debits & Credits T- Accounts

  37. Rules of Debits & Credits T- Accounts Debit Credit (Left Side) (Right Side)

  38. (ALL) (ALL) (General Rule) Stockholders’ Assets Liabilities Equity + - - + - + Increase Decrease Decrease Increase Decrease Increasewith withwithwithwithwith debits credits debits credits credits debits

  39. Components of Stockholders’ Equity Revenues Expenses Dividends - + + - + - Decrease Increase Increase Decrease Increase Decreasewith withwithwithwithwith debits credits debits credits debits credits Capital Stock Retained Earnings - + - + Decrease Increase Decrease Increase with withwithwith debits credits debits credits

  40. Jim’s Lawn Care • Jim Hamilton began a lawn care business in May by selling $12,000 of capital stock • Purchased lawnmower on account, $3,000 • Purchased a truck and trailer with cash, $8,000 • Purchased equipment for $2,500, making a $750 downpayment • Borrowed $15,000 from the bank, due in 3 yrs • Ordered office supplies, $300 • Paid $3,000 cash for the lawn equipment purchased in #2 • Received office supplies ordered in #6 (not paying for it yet….)

  41. Analyzing the Transactions Jim began a lawn care business in May by selling $12,000 of capital stock Cash 12,000 Capital Stock 12,000

  42. Analyzing the Transactions 2. Purchased lawnmower on account, $3,000 Equipment 3,000 Accounts Payable 3,000

  43. Analyzing the Transactions 3. Purchased a truck and trailer with cash, $8,000 Equipment 8,000 Cash 8,000

  44. Analyzing the Transactions 4. Purchased equipment for $2,500, making a $750 downpayment Equipment 2,500 Cash 750 Accounts Payable 1,750

  45. Analyzing the Transactions 5. Borrowed $15,000 from the bank due in 3 yr Cash 15,000 Notes Payable 15,000

  46. Analyzing the Transactions 6. Ordered office supplies, $300 No Journal Entry Needed

  47. Analyzing the Transactions 7. Paid $3,000 cash for the lawn equipment purchased in #2 Accounts Payable 3,000 Cash 3,000

  48. Analyzing the Transactions 8. Received office supplies ordered in #6 (not paying for it yet….) Office Supplies 300 Accounts Payable 300

  49. Summarizing Transactions Cash Supplies Equipment 12,000 8,000 300 3,000 15,000 750 8,000 3,000 2,500 15,250 13,500 A/P N/P Capital Stock 3,000 3,000 15,000 12,000 1,750 300 2,050

  50. Trial Balance DebitCredit Cash 15,250 Supplies 300 Equipment 13,500 Acct Payable 2,050 Note Payable 15,000 Capital Stock 12,000 29,050 29,050

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