Midterm Financial Accounting 3000 Flashcards
REend = REbeginning + Net Income (NI) – Dividends Declared (DD)
equ 7
Where does this account belong on …..
Equipment, like furniture and fixtures
NI comes from income statement!!!
Noncurrent Asset
could be current if she says
Balance Sheet
Where does this account belong on …..
Rent Payable
Liability
Balance Sheet
Where does this account belong on …..
Cash
Asset
Balance Sheet
wages expense
expense/Loss
Income statement
accounts receivable
THIS IS CREDIT
asset
balance sheet
common stock
owner’s equity
balance sheet
service revenue
revenue/gain
income statement accounts
prepaid rent
current asset
balance sheet
accounts payable
liability
balance sheet
investments in securities
asset
balance sheet
income taxes payable
liability
balance sheet
income taxes expense
expense
income statement
notes receivable
asset
balance sheet
loss on sale of investment
expense/loss
income statement
rent expense
expense/loss
income statement
land
asset
balance sheet
preferred stock
sharehodler’s equity, which is part of owner’s equity
balance sheet
supplies
NOT INVENTORY
supplies are literally what are in your supply cabinet
asset
balance sheet
supplies expense
expense/loss
income statement
prepaid insurance
asset, katherine said it was current but look to see if wendy makes a difference btw NCA and A
balance sheet same thing if prepaid
utilities expense
expense/loss
income statement
current assets
and NCA
-cash and cash equivalents 90 days or less
-investments could also be noncurrent though
-anything that is 1 year
- accounts receivable
-inventory
-prepaid assets
NCA= PPE, investments, intaginble assets
assets are defined as
resources belonging to the company
1. it must be owned or controlled by teh company
2. it possess probable future benfits that can be measured in monetary units
expenses are always debited!
we know how assets and libaility impact equity
within RE equity account anything that makes it go up, will be a credit, bc if increase equity by issuing more shares that would also make my equity go up
- anything that makes it go down would be an expense
what I was getting at last time, imagine the income statement lives inside retained earnings**
EXPENSES ARE ALWAYS DEBITED
revenues are always credited!!!
EXPENSES ARE ALWAYS DEBITED
REVENUES are always credited*
no economic rational need all these things to zero out at the end
goes into Net income then retained earnings!
closing accounts…..
will always be hte opposite of what I did above
revenue
is not an equity, asset or liability it is just sayign hey this is what happened in this time period
ex. service revenue
need all the accounts to have zero balances at the end** so this would actually economic activity this is just my closing entry to make sure I go back to zero balance
SO FLIP when closing entry** only applies to revenue adn expense accounts**
depreciation explained
when PPE is purchased, it is a capital expenditure:
always Dr. PPE $Historic Cost
Cr. Cash/Debit $historic cost
Dr. Depreciation Expense $X= lowers net income, WE ALWAYS DEBIT expenses
Cr. Accumulated Depreciation $X
expenses make net income lower therefore it dec net earnings***
just so you know:
difference btw depreciation vs ameorilation, identical concepts depreciatin is physical assets, ameorilization is copyrights, patents, exactly same thing but intangible assets
problem set 3 question
r- 1/31 GMM declares and pays a dividend of $0.05 per share.
dividend when they declare immediately becomes a liability**
dividends issued X
150,000 shares of common
stock valued at $1 par.
150,000 x $0.05 per share= $7,500, thats it!
so visualize on balance sheet: decrease cash and inc retained earnings:
Dr. Retained Earnings $7,500
Cr. Cash $7,500
credit cash because your cash goes down, then debit retained earnings**
contra-asset
is a negative asset account related to an asset account to double click on balance sheet what it would look like
so when I buy the PPE ex problem set 3 PPE gross will always be at historical cost what I paid for the thing 830,000
then I have a negative asset which keeps track of how much I have used it for how much I bought it, yes I paid 830,000 for it but during January I have used up 3750 so new baalnce of PPE woudl be 830,000- 3750** so usually that is abbreviated XA for contra account
contra-assets 2
contra assets inc with credits
decrease with debits
problem set 3 question part 2
r- 1/31 GMM declares and pays a dividend of $0.05 per share.
more complicated when you declare it at that moment in time I am creating a new liability called dividend payable and dec retained earnings
Dr. Retained earnings X
Credit Dividends Payable
then when actually pay it
cash dec and liabiity goes away
Dr. Dividends Payable X
Cr. Cash X
but just easier to do at teh end Dr. Retained Earnings X and Cr. Cash X bc cash goes down
problem set 3 question (s)GMM adjusts for its monthly taxes which are not due until March. GMM is subject to a 30%
we recognize an expense but have not yet paid it!
book value minus hte loss=
when you sell something at a loss of 750 means sell it for 100 less than what it was worth on my balance sheet
two kinds of cap x
growth cap x and steady state cap ex
steady state cap ex= what we need to continue to operate the way we are operating at a steady state
growth going out and buying new things
receives is always
rule #1
an asset
balance sheet
payable is always
rule #2
liability balance sheet
prepaid is always
rule #3
asset balance sheet
expense is always
rule #4
value of expense
= income statement
operations of a business how we run a business we have expenses!
exceptions prepaid is always an asset and trumps rule number 4
thus Prepaid rent expense is always an asset on balance sheet
revenue is always….. rule #5
revenue always goes on income statmenet can also be called advances from customers what we ear
rule #6 unearned revenue or deferred rev enue is always
a liability goes on balance sheet like gift cards, concert tickets, plane tickets
inventory* from cash flow
inventory* our warehouse so it costs
if sell off 2 dollars but costs me 1 dollar to produce I have
2 dollars in revenue 1 dollar cogs, 1 dollar
helpful hints
Lecture 1
- beware of fiscal years vs fiscal year-ends
year end 1/30/2022 relates to fiscal year 2021
- beware of denominations. ex dollar values may be in millions, but number of shares may be whole numbers. additionally, when reporting in millions rounding may cause misleading perceptions
- financails are comparable… but the most recent year is not always on the left
- while GAAP dictates how accounting numbers are calculated, there is variation in the presentation of those numbers in financais
The balance sheet part 1
Lecture 1
- a cumulative statement, snapshot in time, measured using historic values (in general)
- a conservative statement, the report bad news when it is probable only
- we report good news when it is definite*
- this is a way to discern a company’s= assets, liabilities, owner’s equity!
for example huge red flag= if revenue grows steadily but accounts receivable goes up way more= context dependent could be a big deal, makign all these sales but not actually collecting a lot from my customers! RED FLAG NOT REALLY REVENUE GROWING
or if they are diluting hte dividends and put out more dividends
Income statement
lecture 1
a periodic measurement, different than blanace sheet
measured using the accural method
a way to discern a company’s
revenue, gains, expenses and loses=
NET INCOME= Revenues + Gains- Expenses-Losses
Revenue and Expenses are operating issues
Gains and Losses are investing/financing
Income statement 2
lecture 1
-all income statement accounts start at zero each accounting period
-net income is determined over the course of the accounting period
- at the end of the accounting period, after the IS is prepared, all income statement accounts are closed-out, and moved into retained earnings***
income statement 3
lecture 1
all accounts are valued using the ACCRUAL METHOD
1. revenues and gains are recognized when earned and measurable, regardless of whether cash is received
earned:
ex. retail title transfers or service provided
2. expenses/losses are recognized when incurred regardless of whether cash is spent
incurred: resource has been used
a main purpose of the accrual method is to match revenues and expenses within the same accounting period
shareholders equity=
separated into two columns:
Earned capital:
1.retained earnings
2. accumulated other comprehensive income
Contributed capital
1.common stock (at par)
2.preferred stock (at par)
3. additional paid-in-capital (APIC)
4. treasury stock
in the us we create a bs using indirect method* american apparel is different they use the direct method
capital contribiuted in excess of par value
shareholder’s equity, BS
goodwill
intangible asset, goes on BS** if purchased from another firm, not on th BS if created by the firm
estimated liability under warranty contract
current liability
raw materials inventory
asset
rental fees received in advance
current liability for us
treasury stock
shareholders’ Equity (contra account)
owner’s equity
change in Assets= Change in liabilites+ change in owner’s equity
what is owner’s equity?
the amount owned by owners. “The residual” teh value of all assets not owed to others (liabiliites) is considered owned by the shareholders (owners)
all asset values not owed to third parties are considered owned by the shareholders, assets are what the company owns not what a shareholder owns
balance sheet T accounts
lec 4
balance sheet we never close out because it is cumulative, they are accumulative last period’s ending values we only close out income statement bc it is a snapshot in time
Dr. X Cr always think diet coke
assets
debit inc/plus left handside *** always
credit dec/ negative right hand side
liabilityes and shareholder/owner’s equity= Credit plus sign, right
debit left hand side negative sign
balance sheet T accounts 2
lecutre 4
bs t accounts balance and impact IS through Net Income is part of retained earnings which impacts revenue!!!!
revenue gains credited!!! expses are debited! when we inc revenue inc net income so inc retained earnings at the end
T accounts adjustments
lecutre 4
typically does not involve a physical event, instead the passage of time means revenue is earned or an expense has been incurred
-ex interest revenue/expense accrues, but is not yet due
ex of interrest accures overtime
ex. supplies are used- we count what remains and assume what was there in begining and used that is the ending
ex. prepaid assets are used
uneared revenue/advances from customers is earned
PPE has been used, this is a fixed asset used , or resource used up in pursue of revenue= depreciation expssense
if borrow money interest expense
depreciation journal entry
Dr. Depreciation Expnse $X expense on income statement
Cr. Accumulated Deprectiation - contra-asset on the balance sheet
BS presentation:
PPE, Gross $Historic Cost
Less: Accumulated Depreciation (subtract $change in deppreciatin expense)
— PPE, NET= $book value, any expnese remember is on teh income statement bcs it impacts revenue!!
income statement
ex
lect 4
revenue= price X quantity
(-cost of goods sold )
_____
gross margin from sales
(minus SGA)
Operating Income
Gains/Losses
Income before taxes
(income tax expense)
Net incomeL
bookkeeping order of events
lecture 4
- use ending t account balances to create hte income statement
- record/post adjusting tax entry
7.record/post closing entry (move NI into RE)= very important for closing entry = close all temporary accounts and move NI into RE!
8.use ending t accoutn balances to create the baalnce sheet - use completed balance sheet and income statement to create cash flow statement
goal of cash flow statement
reconcile the perioic change in cash
why accrual method vs. cash method
separate cash inflow and outflows into 3 business activities
1. operations –>CFO
2. Investing–> CFI
3. financing–> CFF
remember we use and study the indirect method like most US companies, only American apparel can think of uses direct method
Tax Entry t- account MEMROIZE
Dr. Tax Expense $X
Cr. Taxes Payable $X
$X= inc. before taxes x tax rate!
set up for cash flow
lec 4
- create a cash t account
- include beginning and ending cash balances (from balance sheet)
- create three separate sections for the three business activities
operating, inves, financing - assume that net income is an inrease in cash** from operations so always put net income in cash to beging NI will be negative net losses out flows of cash from operations out
set up for cash flow
part 2
lec 4
changes in current accounts impact operating cash flows- EXCEPTION short term ivnestiments are investing activies they impact others
dividends payable are financing activities
changes in NCA impact investing cash flows like PPE
changes in NCL and owners’ equity impact financing cash flows
COGS is not prt of the csh flow statement
bc this doesnt involve any cash transaction
-COGS merely represents the cost of ivnentory used up or sold
this inveotry is sold, hopefully for a higher price either through cash or AR
-the net revenue is captured through teh income statement, teh net cash received is the NI change in AR
Change in ivnentory reprsents either a cash outflow, inc in inventory or cash inflow reduction in inventory
helpful hint
when preparing a statment of cash flows, ask the following about every transaction:
what happens to changes in current assets?
lecture 4
- What is the impact on NI?
- What is the impact on Cash?
changes in CURRENT ASSETS (CA)= obvi other than cash= operating section
1. increases in CA other than shot term ivnestments bc that is an investing activity!= credit or decrease teh cash t-accoutn!!!!
- if there is a dec in current assets (CA) =debit and increase the cash t-accunt
problem set 4 ex
operating activities for cash flow
cash inflows
-Cash receipts from customers for sales
made or services rendered (or in
anticipation of future deliveries of
goods/services)
-Cash receipts of interest and dividends
-Other cash receipts that are not related
to investing or financing activities, such
as rentals, lawsuit settlements, and
refunds received from suppliers
cash outflows
-Cash payments to employees or suppliers
-Cash payments to purchase inventory
-Cash payments of interest to creditors
-Cash payments of taxes to government
-Other cash payments that are not related
to investing or financing activities, such
as contributions to charity and lawsuit
settlements
investing activities
cash inflow=
-Cash receipts from sales of PPE and
intangible assets
-Cash receipts from sales of investments
in government securities and securities
of other companies (including
divestitures)
-Cash receipts from repayments of loans
by borrowers
investing activities
cash outflows
Cash outflows=
-Cash payments to purchase PPE and
intangible assets
-Cash payments to purchase
government securities and securities
of other companies (including
acquisitions)
-Cash payments made to lend money
to borrowers
financial activities
cash inflows=
Cash inflows
-Cash receipts from issuance of stock
and sales of treasury stock
-Cash receipts from issuance of bonds
payable, mortgage payable, and other
notes payable
financial activities
cash outflows=
cash outflows
-Cash payments to acquire treasury
stock
-Cash payments of dividends
-Cash payments to settle outstanding
bonds payable, mortgage payable,
and other notes payable
ex. AR
increase in AR (sales on account)
dec in AR
inc in AR /inc in sales on account =
Dr. AR
Cr. Sales Revenue
only reason we have an inc in AR is bc net income inc, no impact on cash
dec in AR (cash recepit) Dr. Cash
Cr. AR not impacted NET INCOME* reflected in Net income but we have an increase in cash here!!
Current liabilites lec 4
lecture 4 cash flow
practice exam midterm A
journal entry b
DBI sells old PPE for $2,000
cash. The equipment was
originally purchased for $80,000
and had $70,000 of associated
Accumulated Depreciation.
answer=
Dr. Cash $2,000
Dr. Accumulated Depreciation $70,000
Dr. Loss $8,000
Cr. PPE $80,000
b continued.
-compare book value PPE net to actual sale price. Book value= purchase price - accumulated*,
worth 80,000- deprectiationw hich is 70,000
if its worth 10,000 (bc 80k-70k=10k) = loss of 8,000 bc sold it for 2,000
but for example if we could have sold it for 20,000 I have a gain, if I sell it for less that is a loss but if I sell it for more that
is a gain, so purchased price - accumulated
- memorize when undoing accumulated deprecitation bc it is a contra-asset we have to debit it so it becomes Debits=
Dr. Loss $8,000
Dr. Acc Deprecitaiton 70k
Dr. CAsh $2,000
Cr. ppe gross 80,000
can also do contra assets= AR if I extend credit to my customers I will probably not geto 100% of that money, some ppl will go out of business and just decide not to pay me, if I made 100 dollars in credit sales, I also need to make an estimate of how much
I am not going to colelct, and that will recall allowance for dboutful accounts
- similar way AR gross dollar amount of crdit sales I made, this is my estimation AFDA allowance for doubtful accounts
AFDA= will be what I will not collect, so if I made 100 dollars in AR sales I can estimate I will not collect 2 of them
so can list them as really 98 for my accounts receviable net of that allowance* this is just another example
equation 1
Total Assets = Total Liabilities + Total Owners’ Equity
equation 2= Total Assets = Current Assets + Non-Current Assets
what is liabilities equation, equation 3
if asset can be consumed in one year we treat it as current, if not it is noncurrent
Total Liabilities = Current Liabilities + Non-Current Liabilities
same thing with assets, if can be consumed in one year it is current otherwise noncurrent Liability
Inventoryend = Inventorybeginning + Purchases – Cost of Goods Sold (CGS)
Inventoryend = Inventorybeginning + Purchases – Cost of Goods Sold (CGS)
plug in purchases sold
COGS is from IS**
REend = REbeginning + Net Income (NI) – Dividends Declared (DD)
REend = REbeginning + Net Income (NI) – Dividends Declared (DD
equation 4
Total Owners’ Equity = Contributed Capital + Earned Capital
Total Owners’ Equity = Contributed Capital + Earned Capital
Contributed Capital = Common Stock (CS) + Preferred
Stock (PS) + Additional Paid in Capital (APIC) – Treasury Shares
eq 5
Contributed Capital = Common Stock (CS) + Preferred
Stock (PS) + Additional Paid in Capital (APIC) – Treasury Shares
TS is repurchased company stock which is not retired.***
Common stock calculation
CS and PS are stated at their respective par values.
Example: A firm issues stock with $1 par for $10
$1 is “Common Stock” and $9 is considered “APIC”.
Earned Capital =
equation 6
Earned Capital = Retained Earning (RE) + Accumulated Other
Comprehensive Income (AOCI)
AOCI is a catch-all for ∆s to equity which do not flow through NI.
deprectiation
so our journal would
Dr. PPE
Cr. Cash
example of math for deprectiation expenses
what should an incoem statement look like?
revenue calculated by price of goods sold X quantity
additional terminology
problem set 1
Question 10: Assume that during fiscal year 2024 Gap Inc. purchases $800 million of inventory on account. Please explain how such a transaction would impact the following:
Q 11
problem set 1 Q 12 and Q13
problem set 1 Q9
what does 1 billion look like?
how many zeros does 1 billion have
9
=1, 000,000, 000
1,000,000,000 has nine zeroes = 10^9, which equals ONE BILLION. Therefore, ten billion has TEN ZEROES or 10^10
what does 100 million look like?
how many zeros does 100 mill have
100,000,000
so 8 zeros
lecture 2
lecture 2 transaction 4 and 6
lecture 2
how many shares of stock er were issued and outsanding as of Jan 31
phoebe’s notes
phoebe;s notes from her exam
- You can basically plug all the difference between year 1 and year 2 amounts into the CFS (e.g., a $100 increase in Inventory would directly lead to a $100 credit in Cash) except PPE and Retained earnings (e.g., a $100 decrease in PPE does not necessarily mean a direct $100 debit in Cash). For PPE and Retained Earnings, you would have to solve the PPEg and Depreciation expense t-accounts as well as the Dividends Payable and RE t-accounts.
- On the CFS, don’t forget to include NI! Sometimes students forget this and can’t figure out why everything isn’t balancing.
- Remember the basic equations
- REend = REbeg + NI -DD
- Inventory-end = Inventory-beg + Purchases - COGS
- Most importantly: Total assets = total liabilities + total owners’ equity
- When filling in the blanks on BS/CFS/IS, sometimes you may need to work backwards. For example, figuring out Pre-Tax Income by knowing Net Income and the Tax rate.
- For overstated/understated problems, just complete the practice problems repeatedly until you get the logic of them. I would write out the Journal Entries to guide your thinking. Also, remember that A = L + OE, so if there is an increase of $X in Assets, you should expect an equal increase of $X from the L + OE side of the equation.
- Cash t-account is influenced in multiple ways by PPE
- Depreciation Expense
- Loss/Gain on sales
- Proceeds from sales
- CAPEX (purchases of PPE)
lecture 2 par value again vs market share just memorize math
GMM completes its second project. The client (Client B) does not pay in cash; GMM gives the Client B a $27,575 bill to be paid within 30 days.
problem set 3
Dr. Accounts Receivable $27,575
Cr. Service Revenue $27,575
phoebes nots from midterm 2
- You can basically plug all the difference between year 1 and year 2 amounts into the CFS (e.g., a $100 increase in Inventory would directly lead to a $100 credit in Cash) except PPE and Retained earnings (e.g., a $100 decrease in PPE does not necessarily mean a direct $100 debit in Cash). For PPE and Retained Earnings, you would have to solve the PPEg and Depreciation expense t-accounts as well as the Dividends Payable and RE t-accounts.
- On the CFS, don’t forget to include NI! Sometimes students forget this and can’t figure out why everything isn’t balancing.
phoebes nots from midterm 3
- Remember the basic equations
REend = REbeg + NI -DD
Inventory-end = Inventory-beg + Purchases - COGS
Most importantly: Total assets = total liabilities + total owners’ equity
- When filling in the blanks on BS/CFS/IS, sometimes you may need to work backwards. For example, figuring out Pre-Tax Income by knowing Net Income and the Tax rate.
- For overstated/understated problems, just complete the practice problems repeatedly until you get the logic of them. I would write out the Journal Entries to guide your thinking. Also, remember that A = L + OE, so if there is an increase of $X in Assets, you should expect an equal increase of $X from the L + OE side of the equation.
- Cash t-account is influenced in multiple ways by PPE
- Depreciation Expense
- Loss/Gain on sales
- Proceeds from sales
- CAPEX (purchases of PPE)
lecture 2 problem set
page 19
lecture 2 page 21 part 1
leture 2 page 21 part 2
phoebe’s notes part 1 for midterm
- You can basically plug all the difference between year 1 and year 2 amounts from the Balance Sheet into the CFS (e.g., a $100 increase in Inventory would directly lead to a $100 credit in Cash) except PPE and Retained earnings (e.g., a $100 decrease in PPE does not necessarily mean a direct $100 debit in Cash). For PPE and Retained Earnings, you would have to solve the PPEg and Depreciation expense t-accounts as well as the Dividends Payable and RE t-accounts.
- On the CFS, don’t forget to include NI! Sometimes students forget this and can’t figure out why everything isn’t balancing.
- Remember the basic equations
REend = REbeg + NI -DD
Inventory-end = Inventory-beg + Purchases - COGS
Most importantly: Total assets = total liabilities + total owners’ equity
- When filling in the blanks on BS/CFS/IS, sometimes you may need to work backwards.
For example, figuring out Pre-Tax Income by knowing Net Income and the Tax rate.
phoebe’s midterm notes 2
- For overstated/understated problems, just complete the practice problems repeatedly until you get the logic of them. I would write out the Journal Entries to guide your thinking. Also, remember that A = L + OE, so if there is an increase of $X in Assets, you should expect an equal increase of $X from the L + OE side of the equation.
- Cash t-account is influenced in multiple ways by PPE :
-Depreciation Expense
-Loss/Gain on sales
-Proceeds from sales
-CAPEX (purchases of PPE)
phoebe’s midterm notes 3
midterm B notes with patrick
midterm B notes with patrick 2
cash flow
patrick cash flow memorize 11.20.24
phoebe’s midterm cheat sheet 1
phoebe midterm cheat sheet 2
Lecture 4 cash flows
When changing current assets
When preparing a SCF, ask the following about every transaction:
(1) What is the impact on NI?
(2) What is the impact on Cash?
current liabilities …… from lecture 4
current liabilities impact cash flow how ex lecture 4
wages payable did not get paid inc the liability because dec net income right but did not have an inc on cash
so didnt dec cash yet adding it back just an adjustment relative to net income
lecture 4 cash flows the rest of the notecards
changes in nca like investments
for NCA like PPE when we buy PPE we Dr. PPE Cr Cash
has no impact on NI, thats irrelevant
dec cash obviosuly right bc outflow of cash
cap ex is like when we buy something through cap
a dec in PPE like when we sell capex properties there is an inflow of cash so cash is positive, impact on NI we will deal with later could nbe a gain or loss work on that after thanksgiving
NCL or Owners Equity
inflow of cash if inc in BP!!!
issuance of debt!!!
vs decrease in bonds payable would dr. bonds payable when we pay the bond right, and crdit cash so dec cash, outflow of cash!
entire complete cash flow statement
if ASSETS go up cash goes down!!!!
proceeds from stock or debt issuance is normally the case in finacing section for start up companies
memorize for cash flow!
these notes are on midterm B solutions pdf written up in my accounting folder
right so just memroize dec in current assets will be a decrease in Net INCOME
and didnt actually lose cash yet!!!
cash flow example lecture 4
current assets section
balance sheet
** for inventory this means /reflects the value of your inventory used up this period
Dr. CGS
Cr. INV
so for inventory=net income dec, cash flow no change
vs with AR net income increases no change in cash flow*** sales revenue inc by 132 but not yet collected so its in the operating section but cash is not collected
balance sheet
cash flow example lecture 4
current liabilities section accounts payable
current liability goes up so have to adjust it on staement of cash flow
net income dec so reduction but doesnt impact cash yet so no change on cash at the moment
current liabilities cnt
for taxes and interest payable cash flow doesnt matter because whatever I inc the value by I dec teh value by
change doesnt matter for top bc the net change was fully paid so any inc is canceled out by a dec
for accrued liabilities - dec liability dec statement of cash flow
so debit accrued liability cr. cash paying it right so that means we have to dec cash to pay it! net income has no change, cash dec!
non current assets
goes in investing section
only time we would ever credit accumulated depreciation we have a depreciation expense flowing through INCOME STATEMENT** and then net income so thus net income dec
remember depreciation expense is listed on income statement as 243 thats where you get that #**
non current liabilities= financing section
bonds payable!!!
Assume no new bonds were issued during 2026.
noncurrent liabilities
RETAINED EARNINGS IS HTE HARD ONE*
remember step one most important put Begining balance of RE at top and ending balance of new year of RE at bottom
what goes on that plug fromn right side is NET INCOME FROM INCOME STATEMENT** KEY
that 1192 is the net income FROM INCOME STATEMENT
I care about what was paid, so this means that the left hand side must have given 573 to shareholders and look for dividiends payable
Dr. dividends payable $573
cr. cash payable $573
final cash flow statement work from lecture 4
Cash Flows from Operations:
Net Income $ 1,192
Adjustments to Net Income:
Depreciation Expense 243
Changes in Working Capital:
Accounts Receivable (132)
Inventories 27
Accounts Payable 136
Accrued Liabilities (140)
Cash Flows from Operations $ 1,326
Cash Flows from Investing Activities:
Purchase of PP&E (Capital Expenditures) (525)
Purchases of Long-Term Investments (264)
Cash Flows Used in Investing $ (789)
Cash Flows from Financing:
Payments on Bonds Payable (233)
Dividends Paid (573)
Cash Flowed Used in Financing $ (806)
cupcakes cash flow example for operating section
lecture 4
please notice how if depreciation expense inc from 20,000 to 26,000 then inc depreciation expense on L side by 6,000***
cupcakes cash flow example for investing and financing section
lecture 4
note
a. proceeds from issuance of stock is the change in CS + APIC so 6,000 + 10,000= 16,000 is the proceeds from stock issuance on fin ancing left side
b. dividends paid is 2320 bc we had no dividends paid line and 2320 is what dividends declared was SO! just do 2320
REe=REB + NI-DD
* the hard one besides depreication so=
144,780= 135,100+ 12,000-DD
DD= 2320
cupcakes csh flow example part 3 lecture 4
dividends declared vs dividends paid
DD
dividends paid
THIS IS WHAT GOES ON CASH FLOW STATEMENT
what is the impact of delcaring a dividends on net income???
NOTHING dividends is not an expense has no impact doesnt run through net income!!!
How to incorporate dividends in the SCF:
Step 1: Find dividends declared, which is the change (always a reduction) in retained earnings not attributable to current period net income or net loss.
Step 2: Find dividends paid, which is the reduction in dividends payable.
-If dividends payable does not exist (there’s no beginning or ending balance of dividends payable), it may be assumed all dividends declared this period were paid this period.
-If there is a balance in the dividends payable account, increase the dividends payable balance by the dividends declared this period, and solve for the decrease to dividends payable, which is equal to the value of dividends paid.
*** this DIVIDENDS PAID is the only thing she cares about that goes on cash flow statement that pink box of step 2 is what goes on cash flow statement
Net income comes from Income statement adn will b e given to you and can find it there
change in CS
Always consider changes in common stock (at par value) together with
changes in APIC.
Together changes in common stock (at par value) and changes in APIC
represent changes in contributed capital.
An increase in common stock (at par value) PLUS an increase in APIC
represent the total inflow (increase) of cash due to stock issuance.
A decrease in common stock (at par value) PLUS a decrease in APIC
represent the total outflow (decrease) of cash due to stock repurchase.
how to deal with PPE
Any sale of PPE (for cash) will result in a journal entry with at least
three components:
Dr. Cash $Proceeds
Dr. AD $ΣDeprec. Exp.
Cr. PPE $Historic Cost
The only impact on cash is the cash proceeds. This should be the
cash in-flow due to investing activities.
However, net income is impacted by any gain/loss. These gains &
losses represent non-cash changes to net income in operations, and
thus must be reversed out of the operating section.
loses like expenses we recognize as debits always, credits are gains
2 step rpocedure for PPE
step 1:
Helpful Hint: Recreate the journal entry
for the sale of PPE in order to determine
the impact on NI (gain or loss) and the
impact on cash (proceeds from sale).
Reverse gains/losses out of NI in the operating section.
How?
–>If there is a gain: credit the cash T-account by the amount of the gain in CFO.
–>If there is a loss: debit the cash T-account by the amount of the loss in CFO.
Why?
a) A gain/loss impacts net income, but not cash flows.
Recall: a gain/loss is the difference between book value of PPE sold and cash proceeds received; it is not the change in cash.
b) The gain/loss is included in net income, and thus the operating section. However, the sale of PPE relates to an investing activity.
step 2 for PPE on cash flows:
Show the increase of cash in the investing section.
How?
–>Debit the cash T-account by the amount of the cash proceeds in CFI.
Why?
–>The cash proceeds represent the increase in cash from the sale of an
investment.
PPE cash flow ex
ghree steps to adjust cash flows for sale of PPE related ccounts
step 1
(1) Reverse depreciation expense from net income in operating section.
How? Debit the cash T-account by the amount of depreciation expense.
Why? Depreciation expense decreases net income but not cash.
Step 2
part of three stepss to adjust cash flow for sale of PPE related accounts
(2) Reflect capital expenditures in investing section.
How? Credit the cash T-account by the amount of capital expenditures.
Why? Capital expenditures decrease cash but not net income.
step 3 for cash flow for sale of PPE Related accounts
3) Reflect sales of PPE using the two-step procedure.
How? 1st reverse the gain/loss in the operating section;
2nd debit the cash T-account by cash proceeds in investing.
Why? 1st step: gains/losses impact net income but not cash. Also, gains
and losses are in the operating section but PPE sales relate to
investing activities;
2nd step: cash proceeds increase cash from investing activities.
again total steps 1-3 for adjusting cash flows for sale of PPE realted accounts
the BV or 3 here in this image of t accounts “BV of ppe sold” she boxed for both PPE gross and Acc Depr. = these 2* things do not show up on cash flow but helpful for understanding cash flow so sale of
Ex. Beginning PPE
Gross $1,800
AD ($800)
Net $1,000
page 34 in notes
Ending PPE
Gross $1,990
AD ($840)
Net $1,150
cash changed dec by 30
WE NEVER CARE ABOUT NET only gross!!! add back depreciation
so starting point for statement of cash flow assume + 200 not negative*** thats the assumption begin with Net Income 200 even though our cash went down from 70 to 40 this year just assume positive net income of 200
remember from IS= income statement
the depreciation expense we did not lose 70 in cash but just adijusting the 70 with depreciation expense so then we have those journal entries
the highlighted loss on disposal of buildings nad equip. of 15 is the SALE OF PPE
balance sheet for ex on page 34 of cash flow statement
ex page 34 answer of T accounts***
** 1. the 70 isd the Accumulated depr. that was originally credited from the IS so then 800 + 70 -x = 840
x= 30
so do that first
step 2. plug in the step 2 of the 245, we are told that the company investing activity, we are given 55,000 was the historic cost of sold PPE in this time so we plug in to find 245 bc 1,800+ y- 55=1,990
so y=245 PLUG
step 3. Book value of PPE sold
55-30= 25 ** this tells us for our cash flow statement the dec, 25 is the value of the land at the time of sale so really 25 not 55
THEN from IS we have hte loss on the sale we know its 15!!! 25-15= 10!!!
NOW JOURNAL ENTRY FINAL:
Dr. Cash 10
Dr. Accumulated depreciation 30
Dr. Loss 15
Cr. PPE Sold 55
the 10 is is the proceeds from the sale of PPE so that goes in investing setion an inc in cash by 10 for land so inc of cash by 10 from proceeds from sale
cash flow statement ex from page 34-37 again
cash flow statement again with the loss from the sale of 15 added into OPERATION SECTIOn
10 inc in cash from proceeds of sale goes into investing section!!
the light green hihglight is what gets put on the cash flow the cash debit of 10 and the debit loss of 15
** dec in bonds payable** =
= retirement of DEBT*
