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Financial Statements
and Closing Procedures
Section 1: Preparing
the Financial Statements
Chapter
13
Section Objectives
1. Prepare a classified income statement
from the worksheet.
2. Prepare a statement of owner’s equity
from the worksheet.
3. Prepare a classified balance sheet from
the worksheet.
McGraw-Hill © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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The Classified Balance Sheet
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Objective 3
Prepare a classified balance
sheet from the worksheet.
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Current Assets
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Current assets are assets consisting
of cash, items that normally will be
converted into cash within one year,
or items that will be used up within
one year.
ANSWER:
QUESTION:
What are current assets?
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Current Assets
Current assets are usually listed in order of
liquidity.
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Liquidity is the ease with which an
item can be converted into cash.
ANSWER:
QUESTION:
What is liquidity?
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Current Assets
Assets
Current Assets
Cash 13,136.00
Petty Cash Fund 100.00
Notes Receivable 1,200.00
Accounts Receivable 32,000.00
Less Allow. for Doubtful Accounts 1,050.00 30,950.00
Interest Receivable 30.00
Merchandise Inventory 47,000.00
Prepaid Expenses
Supplies 1,325.00
Prepaid Insurance 4,900.00
Prepaid Interest 75.00 6,300.00
Total Current Assets 98,716.00
Simpson Antiques
Balance Sheet
Year Ended December 31, 2007
Current assets for Simpson Antiques
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Plant and Equipment
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Plant and equipment is property that
will be used in the business for
longer than one year.
ANSWER:
QUESTION:
What is plant and equipment?
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Noncurrent assets are called long-term assets.
An important category of long-term assets is plant and equipment.
For many businesses plant and equipment represents a sizable
investment.
Plant and Equipment
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Plant and Equipment
The balance sheet shows three amounts for each
category of plant and equipment :
(Accumulated depreciation)
Book value
Asset
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Plant and Equipment
Assets
Prepaid Interest 75.00 6,300.00
Total Current Assets 98,716.00
Plant and Equipment
Store Equipment 30,000.00
Less Accumulated Depreciation 2,400.00 27,600.00
Office Equipment 5,000.00
Less Accumulated Depreciation 700.00 4,300.00
Total Plant and Equipment 31,900.00
Total Assets 130,616.00
Total Liability and Owner’s Equity 130,616.00
Simpson Antiques
Balance Sheet
Year Ended December 31, 2007
Total plant and equipment
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Current Liabilities
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Current liabilities are debts that must
be paid within one year.
ANSWER:
QUESTION:
What are current liabilities?
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Current liabilities are usually listed in order of priority of payment.
Management must ensure that funds are available to pay current
liabilities when they become due in order to maintain the firm's good
credit reputation.
Current Liabilities
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Current Liabilities
Assets
Prepaid Interest 75.00 6,300.00
Total Current Assets 98,716.00
Total Plant and Equipment 31,900.00
Total Assets 130,616.00
Liabilities and Owner’s Equity
Current Liabilities
Notes Payable-Trade 2,000.00
Notes Payable-Bank 9,000.00
Accounts Payable 24,129.00
Interest Payable 20.00
Social Security Tax Payable 1,158.40
Medicare Tax Payable 267.40
Employee Income Tax Payable 990.00
Fed. Unemployment Tax Pay. 9.60
State Unemployment Tax Pay. 64.80
Salaries Payable 1,200.00
Sales Tax Payable 6,984.00
Total Current Liabilities 45,823.20
Simpson Antiques
Balance Sheet
Year Ended December 31, 2007
Total current liabilities
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Long-Term Liabilities
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Long-term liabilities are debts of a
business that are due more than one
year in the future.
ANSWER:
QUESTION:
What are long-term liabilities?
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Although repayment of long-term liabilities might not be due for
several years, management must make sure that periodic interest is
paid promptly.
Long-term liabilities include mortgages, notes payable, and loans
payable.
Long-Term Liabilities
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Owner's Equity
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Owner's Equity
Simpson Antiques prepares a separate
statement of owner's equity that reports all
information about changes that occurred in the
owner's financial interest during the period.
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Owner's Equity
The ending balance from the statement of owner’s equity is
transferred to the Owner's Equity section of the balance sheet.
61,221.00
51,171.80
27,600.00
23,571.80
84,792.80
Net Income for Year
Less Withdrawals for the Year
Increase in Capital
Patricia Simpson, Capital, December 31, 2007
Simpson Antiques
Statement of Owner's Equity
Year Ended December 31, 2007
Patricia Simpson, Capital, January 1, 2007
Assets
Owner’s Equity
Patricia Simpson, Capital 84,792.80
Total Liabilities and Owner's Equity 130,616.00
Simpson Antiques
Balance Sheet
Year Ended December 31, 2007
R
E
V
I
E
W
A classified income statement is also
called a(n) ___________________________.
___________ is the difference between net
sales and the cost of goods sold.
_____________ are assets consisting of
cash, items that normally will be
converted into cash within one year, or
items that will be used up within one year.
Current assets
Gross profit
multiple-step income statement
Complete the following sentences:SECTION
R
E
V
I
E
W
_______________ are debts that must be
paid within one year.
________ is the ease with which an item
can be converted into cash.
_________________ are debts of a
business that are due more than one year
in the future.
Long-term liabilities
Complete the following sentences:
Current liabilities
Liquidity
SECTION
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Thank Youfor using
College Accounting, 11th Edition
Price • Haddock • Brock