Accounting Fundamentals Accounting Fundamentals

Structure of Financial StatementsStructure of Financial Statements

AGEG 489-689Spring 2010

Topic CoverageTopic Coverage1. Consolidated balance sheet2. Consolidated income statement3. Consolidated cash flow statement4. Monthly cash flow statement and LOC needs5. Debt repayment capacity statement6. Linkages between financial statements7. Introduction to financial statement analysis

Annual Annual Consolidated Consolidated Balance SheetBalance Sheet

Basic Structure of the Basic Structure of the Balance SheetBalance Sheet

Assets: Liabilities and Net Worth:

Current assets Current liabilities

plus Long term assets plus Long term liabilities

plus Net worth

equals Total assets equals Total liabilities and net worth

Assets: Liabilities and Net Worth:

Current assets Current liabilities

plus Long term assets plus Long term liabilities

plus Net worth

equals Total assets equals Total liabilities and net worth

Often referred to as equity

Often referred to as equity

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Balance Sheet StructureBalance Sheet Structure

Annual Consolidated Annual Consolidated Income StatementIncome Statement

Basic Structure Basic Structure of Income Statementof Income Statement

Cash receipts from product salesMinus Operating and interest expensesEquals Net cash income from operationsPlus Gain (loss) on sale of long term assetsPlus Cash subsidies receivedLess Depreciation allowancesEquals Income (loss) before taxesMinus Provision for income taxesEquals Net income

Cash receipts from product salesMinus Operating and interest expensesEquals Net cash income from operationsPlus Gain (loss) on sale of long term assetsPlus Cash subsidies receivedLess Depreciation allowancesEquals Income (loss) before taxesMinus Provision for income taxesEquals Net income

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Income Statement StructureIncome Statement Structure

Annual and MonthlyAnnual and MonthlyCash Flow StatementsCash Flow Statements

Basic Structure of Basic Structure of Cash Flow StatementCash Flow Statement

Cash available (including cash balance)Minus Cash requiredEquals Cash available less cash requiredPlus Available savings withdrawalsEquals Cash positionPlus Net borrowingMinus Other uses of cashMinus Withdrawals of cash to savingsEquals Ending cash balance

Cash available (including cash balance)Minus Cash requiredEquals Cash available less cash requiredPlus Available savings withdrawalsEquals Cash positionPlus Net borrowingMinus Other uses of cashMinus Withdrawals of cash to savingsEquals Ending cash balance

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Cash Flow Statement - 1Cash Flow Statement - 1

Cash Flow Statement -2Cash Flow Statement -2

Need for draw on anLOC in May and June

Need for draw on anLOC in May and June

Cash Flow Statement -3Cash Flow Statement -3

Cash Flow Statement -4Cash Flow Statement -4

Producer drew down an LOCIn months of May and June and repaid balance in July

Producer drew down an LOCIn months of May and June and repaid balance in July

Financial Statement Financial Statement LinkagesLinkages

Statement LinkagesStatement Linkages

Data from cash flow statement to income

statement:

1. Cash receipts from operations

2. Cash operating expenses

3. All other cash items (e.g., interest payments)

Cash flowstatement

Incomestatement

Balance Sheet

Statement LinkagesStatement Linkages

Data from cash flow statement to balance sheet:

1. Ending cash balance

2. Loan balances (current liability portion vs. remaining balance outstanding)

3. Asset adjustments if capital expenditures are made

4. Additions and withdrawals from savings

Cash flowstatement

Incomestatement

Balance Sheet

Let’s Examine these Let’s Examine these Links More CloselyLinks More Closely

2009 Cash Flow StatementSources of cash:Beginning cash balanceCash receipts from product salesOther sources of cash Total sources of cash

Uses of cash:Cash operating expensesInterest paymentsPrincipal paymentsCapital expendituresWithdrawals of cashOther selected uses of cashEnding cash balance Total uses of cash

Basic structure:Total sources = total uses

2009 Income StatementCash receipts from product salesOther income Total income

Cash operating expensesInterest paymentsOther cash expensesDepreciation Total expenses

Net income from operationsAllowance for taxes Net income

Basic structure:EBIT = total income – total expenses + interest payments

Interrelationships Between Financial Statements

Balance Sheet 12/31/09Ending cash balanceOther current assets Total current assets

Machinery and equipmentBuildings and improvementsLand Total assets

Accounts payable Current loan paymentAllowance for taxesOther current liabilities Total current liabilities

Remaining balance on loans Total liabilities

Equity

Basic Structure:Equity = total assets – totalLiabilitiesEquity = Retained net Income + asset revaluations

Other statements and schedules:Statement of Change in Owner EquityDepreciable asset schedules

2009 Cash Flow StatementSources of cash:Beginning cash balanceCash receipts from product salesOther sources of cash Total sources of cash

Uses of cash:Cash operating expensesInterest paymentsPrincipal paymentsCapital expendituresWithdrawals of cashOther selected uses of cashEnding cash balance Total uses of cash

Basic structure:Total sources = total uses

2009 Income StatementCash receipts from product salesOther income Total income

Cash operating expensesInterest paymentsOther cash expensesDepreciation Total expenses

Net income from operationsAllowance for taxes Net income

Basic structure:EBIT = total income – total expenses + interest payments

Interrelationships Between Financial Statements

Balance Sheet 12/31/09Ending cash balanceOther current assets Total current assets

Machinery and equipmentBuildings and improvementsLand Total assets

Accounts payable Current loan paymentAllowance for taxesOther current liabilities Total current liabilities

Remaining balance on loans Total liabilities

Equity

Basic Structure:Equity = total assets – totalliabilities Equity = Retained net Income + asset revaluations

Other statements and schedules:Statement of Change in Owner EquityDepreciable asset schedules

2009 Cash Flow StatementSources of cash:Beginning cash balanceCash receipts from product salesOther sources of cash Total sources of cash

Uses of cash:Cash operating expensesInterest paymentsPrincipal paymentsCapital expendituresWithdrawals of cashOther selected uses of cashEnding cash balance Total uses of cash

Basic structure:Total sources = total uses

2009 Income StatementCash receipts from product salesOther income Total income

Cash operating expensesInterest paymentsOther cash expensesDepreciation Total expenses

Net income from operationsAllowance for taxes Net income

Basic structure:EBIT = total income – total expenses + interest payments

Interrelationships Between Financial Statements

Balance Sheet 12/31/09Ending cash balanceOther current assets Total current assets

Machinery and equipmentBuildings and improvementsLand Total assets

Accounts payable Current loan paymentAllowance for taxesOther current liabilities Total current liabilities

Remaining balance on loans Total liabilities

Equity

Basic Structure:Equity = total assets – totalLiabilitiesEquity = Retained net Income + asset revaluations

Other statements and schedules:Statement of Change in Owner EquityDepreciable asset schedules