Chapter 2 - Slides [Modo de Compatibilidad]

CHAPTER 2

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Assets, Liabilities and Equity.

The Accounting Equation

(Introduction to Financial Statements)

THE ACCOUNTING EQUATION

� The accounting equation presents the resources of the business and the claims to those resources

2

Economic Resources = Claims to Economic Resources

or

ACCOUNTING EQUATION

Total Assets

=

3

Total Liabilities

Total Stockholders’ Equity

+


Assets = Liabilities + Owner’s Equity

4

EconomicResources

Claims toEconomicResources

ACCOUNTING EQUATION

� IT SHOWS THE EQUALITY BETWEEN THE ASSETS (what the company owns) AND THE CLAIMS TO THEM

� FINANCIAL STATEMENTS ARE BASED ON THE ACCOUNTING EQUATION

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ACCOUNTING EQUATION

� Assets are the economic resources of a business that are expected to be of benefit in the future


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� Claims to assets come from� Liabilities

� Owners’ equity (capital)


� Liabilities are debts payable to outsiders, called creditors

� Owners’ Equity represents the “ownership” of the owners

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owners

� It is the owners’ claim on the entity’s assets

� Also known as Stockholders’ equity

� It can be obtained by substracting::

� Assets – Liabilities = Owners’ Equity

� In a corporation, Owners’ equity is knows as Stockholders’ equity

� Stockholders’ equity consists of two main categories:


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categories:

� Paid-in capital

� Retained earnings

Assets = Liabilities + Stockholders’ Equity

Assets = Liabilities + Paid-in Capital + Retained Earnings

or

� Paid-in (contributed) capital is

� The amount invested in the corporation by its owners

� Comprised basically of common stock


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Comprised basically of common stock


� Is the amount earned by income-producing activities and kept for use in the business

� Is affected by


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Is affected by

� Revenues - increases in retained earnings from delivering goods or services

� Expenses - decreases in retained earnings that result from operations

Revenues for thePeriod

-

COMPONENTS OF RETAINED EARNINGS

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Beginning Balance

of RetainedEarnings

+- - =Net Income (Loss)

for the Period

Dividends for thePeriod

Ending Balance ofRetainedEarnings

Expenses for thePeriod

= Start of the Period

End of the Period

� Net income (net earnings)

� Total revenues exceed total expenses

� Net loss

� Total expenses exceed total revenues

OTHER IMPORTANT ACCOUNTING CONCEPTS

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� Total expenses exceed total revenues

� Dividends

� Distributions to stockholders (usually cash) generated by net income

OWNERS’ EQUITY

� REVENUES→INCREASE→ NET INCOME

└→RETAINED EARNINGS

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� EXPENSES→DECREASE→ NET INCOME

└→RETAINED EARNINGS

� DIVIDENDS→DECREASE→ RETAINED EARNINGS

� The owners’ equity of proprietorships and partnerships

� Makes no distinction between paid-in capital and retained earnings

OWNERS’ EQUITY – SPECIAL

SITUATIONS

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� It does not distinguish what is invested from what is earned

� Accounts for the equity of each owner under the single heading of Capital

FINANCIAL STATEMENTS

� THEY ARE:� INCOME STATEMENT

� STATEMENT OF RETAINED EARNINGS

� BALANCE SHEET

� STATEMENT OF CASH FLOWS

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� STATEMENT OF CASH FLOWS

� EACH OF THEM PROVIDES A DIFFERENT INFORMATION ABOUT THE COMPANY

How well did the company perform during the period?

Revenues -Expenses Net income (loss)

Income statement (Statement of operations or Statement of earnings)

Why did the company’s retained earnings change during the period?

Beginning R.E. +Net income (-loss) -Dividends Ending R.E.

Statement of retained earnings (Statement of stockholders’ equity)

Question Answer Financial Statement

1.

2.

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What is the company’s financial position at the end of the period?

Assets = Liabilities + Owners’ Equity

Balance sheet (Statement of financial position)

How much cash did the company generate and spend during the period?

Operating cash flows + Investing cash flow +Financing cash flow Increase (decrease) in cash during the period

Statement of cash flows

3.

4.

Income Statement

How well did the company perform during the month?

Revenues

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Revenues

– Expenses

Net Income (Loss)

INCOME STATEMENT

� It is also known as Statement of Operations

� It reports the company’s revenues, expenses, and net income or net loss for the period

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and net income or net loss for the period

� It is referred to one fiscal year (12 months)

� It may be different from the calendar year

Income Statement

� Two main categories of items on the Income Statement:

� Revenues and Gains

� Expenses and Losses

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Net Income = Revenues and Gains - Expenses and Losses

A IR & S EA TR A V EL, IN C .Incom e S tatem ent

M onth Ended A pril 30 , 2001

R evenue:Service revenue $8,500

INCOME STATEMENT

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Expenses:Salary expense $1,200R ent expense 1 ,100U tilities 400 Tota l expenses 2 ,700

N et Incom e $5,800

� Revenues are

� Increases in retained earnings from delivering goods or services to customers or clients

� Its main source are the company’s sales

INCOME STATEMENT

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Its main source are the company’s sales

� Expenses are

� Decreases in retained earnings that result from operations

� Company incurs in them in order to operate

INCOME STATEMENT

� REVENUE RECOGNITION PRINCIPLE

�

� The revenue recognition principle dictates that revenue should be recognized in the accounting period in which it is earned. But applying this general principle in which it is earned. But applying this general principle in practice can be difficult. Some companies improperly recognize revenue on goods that have not been shipped to customers. Similarly, until recently, financial institutions immediately recorded a large portion of their loan fees as revenue rather than spreading those fees over the life of the loan

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INCOME STATEMENT

� When a sale is involved, revenue is recognized at the point of sale. This sales basis involves an exchange transaction between the seller and the buyer.The sales price is an objective measure of the amount of revenue realized. However, two exceptions to the sales basis for realized. However, two exceptions to the sales basis for revenue recognition have become generally accepted—the percentage-of-completion method and the installment method.These methods are left for more advanced courses

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INCOME STATEMENT

� MATCHING PRINCIPLE (EXPENSE RECOGNITION)

�

� Expense recognition traditionally is tied to revenue recognition: “Let the expense follow the revenue.” As you will learn in Chapter 4, this practice is referred to as the will learn in Chapter 4, this practice is referred to as the matching principle. It dictates that expenses be matched with revenues in the period in which efforts are made to generate revenues. Expenses are not recognized when cash is paid, or when the work is performed, or when the product is produced. Rather, they are recognized when the labor (service) or the product actually makes its contribution to revenue.

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INCOME STATEMENT

� But, it is sometimes difficult to determine the accounting period in which the expense contributed to revenues. Several approaches have therefore been devised for matching have therefore been devised for matching expenses and revenues on the income statement.

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INCOME STATEMENT

� To understand these approaches, you need to understand the nature of expenses. Costs are the source of expenses. Costs that will generate revenues only in the current accounting period are expensed immediately. They are reported as operating expenses in the income They are reported as operating expenses in the income statement. Examples include costs for advertising, sales salaries, and repairs. These expenses are often called expired costs

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INCOME STATEMENT

� Costs that will generate revenues in future accounting periods are recognized as assets. Examples include merchandise inventory, prepaid expenses, and plant assets. These prepaid expenses, and plant assets. These costs represent unexpired costs. Unexpired costs become expenses in two ways:

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� Expenses include

� Cost of goods sold (cost of sales)

� The cost of the goods that a company sold to its customers

Operating expenses

INCOME STATEMENT

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� Operating expenses

� The costs of operating the business

� Operating expenses

� Advertising� The cost to promote the company’s products

� DepreciationThe expense of using company-owned buildings,

INCOME STATEMENT

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� The expense of using company-owned buildings, equipment, and furniture

� Other operating expenses� The costs of salaries, utilities, rent, and supplies

� Interest expense� The cost of borrowed money

INCOME STATEMENT

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Statement of Retained Earnings

Beginning Retained Earnings

+ Net Income ( – Net Loss)

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- Cash Dividends Declared

= Ending Retained Earnings

STATEMENT OF

RETAINED EARNINGS

� The Statement of Retained Earnings reports that portion of net income the company has retained, or kept for use in the business

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retained, or kept for use in the business

� Net income increases retained earnings

� Dividends paid to stockholders decrease retained earnings

� The Board of Directors decides if to pay dividends or not and in which amount

STATEMENT OF

RETAINED EARNINGS

AIR & SEA TRAVEL, INC.Statement of Retained Earnings

Month Ended April 30, 2001

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Retained earnings, April 1, 2001 $ 0Add: Net income for the month 5,800

$5,800Less: Dividends (2,100)Retained Earnings, April 30, 2001 $3,700

Balance Sheet

What is the company’s financial position at the end of a period?

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Assets = Liabilities + Owner’s Equity

BALANCE SHEET

� It reports the company’s assets, liabilities, and owners’ equity.

� This reflects the company’s financial position at a specific moment in time.

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at a specific moment in time.

� It is dated as of the last day of the period

� e.g.: 31-December

Balance Sheet

� Items are listed within each category in order by liquidity, with the most liquid listed first.

� Assets� Current Assets

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� Property, Plant and, Equipment

� Other Assets

Balance Sheet (cont.)

� Liabilities

� Current Liabilities

� Long Term Liabilities

� Shareholders’ Equity

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� Shareholders’ Equity

� Paid-in Capital

� Retained Earnings

AIR & SEA TRAVEL, INC. Balance Sheet

Assets Liabilities

Cash $33,300 Accounts payable $ 100 Accounts receivable 2,000

BALANCE SHEET

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Accounts receivable 2,000 Office supplies 500 Stockholders’ Equity Land 18,000 Common stock 50,000 Retained earnings 3,700 Total stockholders’ equity 53,700 Total liabilities and Total assets $53,800 stockholders’ equity $53,800

ASSETS

� Current assets are� Those assets which the company expects to convert to

cash, sell, or consume during the next 12 months or within the business's normal operating cycle if longer than a year

� Current assets include:� Cash

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Cash

� Accounts receivable� Amount to be collected from customers who bought

merchandise on credit

� Merchandise inventory� The stock of goods the company has for selling to its

customers

� Prepaid expenses� Amounts paid but not yet used (e.g. rent, insurance, …)

ASSETS

� Long-term assets are

� Those assets which the company expects to hold longer than the next 12 months or the business’s normal operating cycle if longer than one year

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� Long-term assets include

� Property: e.g. buildings

� Plant: e.g. land

� Equipment: e.g. machinery, vehicles,…

� These are Tangible assets

ASSETS

� Intangible assets are

� Those with no physical form, e.g.:

� Trademarks

� Patents

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� Other assets are

� Those with small values which do not fall within any other standard asset category

LIABILITIES

� Current liabilities are

� Debts payable within one year or within the business’s normal operating cycle if longer than a year

� Current liabilities include

� Notes payable:

� Amounts borrowed that the company promises to pay back within

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� Amounts borrowed that the company promises to pay back within the year

� Accounts payable

� Amounts owed for goods and services purchased but not yet paid

� Short-term expenses payable

� Amounts owed to employees, to the government and interest

� Income taxes payable

� Amounts owed to the government for income taxes

LIABILITIES

� Long-term liabilities are

� Debts not payable within one year or within the business’s normal operating cycle if longer than a year

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� Long-term liabilities include

� Notes payable, long term

� Bonds payable

OWNERS’ EQUITY

� Owners’ equity

� Represents the shareholders’ ownership of the assets of the business

� Owners’ equity of a corporation consists of

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� Owners’ equity of a corporation consists of

� Common stock

� Amount that owners have paid into the company


BALANCE SHEET (EXAMPLE)

Hercules, Inc.Balance Sheet

December 31, 20X8ASSETS LIABILITIESCash$ 10,000 Accounts payable$ 19,000Accounts receivable 12,000 Salary payable 1,000Supplies 3,000 Note payable 185,000Furniture 20,000 Total liabilities 205,000

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Furniture 20,000 Total liabilities 205,000Building 150,000 STOCKHOLDERS’Land 98,000 EQUITY

Common stock 40,000Retained earnings 48,000Total stockholders’ equity 88,000

Total liabilities andTotal assets $293,000 stockholders’ equity $293,000

Statement of Cash Flows

How much cash did the company generate and spend during the year?

Operating cash flows+ Investing cash flows

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+ Investing cash flows+ Financing cash flows

Increase (decrease) in cash

STATEMENT OF CASH FLOWS

� The Statement of Cash Flows reports the company’s cash inflows and outflows from its major activities as a business:

� operating

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� operating

� investing

� financing activities

Statement of Cash Flows

� Three Basic Types of Activities� Cash flows from Operating Activities

� Cash earned from the company’s business, buying goods and services and selling them to customers

� Cash flows from Investing Activities

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� Cash flows from Investing Activities� Buying and selling long term assets and investments

� Cash flows from Financing Activities� It refers to the way the company acquires funds used in

its investing and operating activities. For example:� Borrowing and repaying loans from banks or other lenders

� Selling or issuing stock

� Paying dividends

C ash flo w s fro m o p era tin g ac tiv ities : C o llec tions from cus tom ers $ 6 ,500 P aym en ts to supp lie rs and em p loyees (3 ,100 ) N e t cash in flow from ope ra ting ac tiv itie s 3 ,400 C ash flo w s fro m in ves tin g ac tiv ities : A cqu is ition o f land $ (40 ,000 ) S a le o f land 22 ,000

AIR & SEA TRAVEL, INC.Statement of Cash FlowsMonth Ended April 30, 2001

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S a le o f land 22 ,000 N e t cash ou tflow from inves ting ac tiv itie s (18 ,000 ) C ash flo w s fro m fin an c in g ac tiv ities : Issuance (sa le ) o f s tock $ 50 ,000 P aym en t o f d iv idends (2 ,100 ) N e t cash in flow from financ ing ac tiv ities 47 ,900 N e t inc rease in cash $ 33 ,300 C ash ba lance , A p ril 1 , 2001 0 C ash ba lance , A p ril 30 , 2001 $ 33 ,300

Relationships Among Financial Statements

� Income Statement is completed first

� Statement of Retained Earnings requires Net Income to calculate an ending balance

� Balance Sheet requires the ending balance of

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� Balance Sheet requires the ending balance of retained earnings to balance.

� Statement of Cash Flows reports increases and decreases in cash and must agree with the Cash balance on the balance sheet

Relationships Among

the Financial Statements

ABC CompanyIncome Statement –

Year Ended December 31, 2006

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Year Ended December 31, 2006Revenues $700,000Expenses 670,000Net income $ 30,000

Relationships Among


ABC CompanyStatement of Retained EarningsYear Ended December 31, 2006

Beginning retained earnings $180,000

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Beginning retained earnings $180,000Net income 30,000Cash dividends (10,000)Ending retained earnings $200,000

Relationships Among


ABC CompanyBalance Sheet

December 31, 2006Assets

Cash $ 25,000All other assets 275,000

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All other assets 275,000Total assets $300,000

LiabilitiesTotal liabilities $120,000

Stockholders’ equityCommon stock 40,000Retained earnings 200,000Other equity (60,000)Total liabilities and stockholders’ equity $300,000

Relationships Among


ABC CompanyStatement of Cash Flows

Year Ended December 31, 2006Net cash provided by operating activities$ 90,000Net cash used for investing activities (110,000)

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Net cash used for investing activities (110,000)Net cash provided by financing activities 40,000Net increase in cash 20,000Beginning cash balance 5,000Ending cash balance $ 25,000

AIR & SEA TRAVEL, INC.Statement of Cash Flows


Cash flows from operating activities:Collections from customers $ 6,500Payments to suppliers and employees (3,100) Net cash inflow from operating activities 3,400

Cash flows from investing activities:Acquisition of land $(40,000)Sale of land 22,000 Net cash outflow from investing activities (18,000)

Cash flows from financing activities:Issuance (sale) of stock $ 50,000Payment of dividends (2,100) Net cash inflow from financing activities 47,900

Net increase in cash $ 33,300Cash balance, April 1, 2001 0Cash balance, April 30, 2001 $ 33,300

AIR & SEA TRAVEL, INC.Income Statement


Revenue:Service revenue $8,500

Expenses:Salary expense $1,200Rent expense 1,100Utilities 400Total expenses 2,700

Net Income $5,800

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Cash balance, April 30, 2001 $ 33,300





AIR & SEA TRAVEL, INC.Balance SheetApril 30, 2001

Assets Liabilities

Cash $33,300 Accounts payable $ 100Accounts receivable 2,000Office supplies 500 Stockholders’ EquityLand 18,000 Common stock 50,000

Retained earnings 3,700 Total stockholders’ equity 53,700

_______ Total liabilities and _______Total assets $53,800 stockholders’ equity $53,800

Business Transactions

� A business transaction is any event that:

� Affects the financial position of the business (i.e. it has a financial impact on it) and,

� May be reliably recorded.

� This implies that they should be measured with reliability.

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� Business Transactions involve give-get exchanges (e.g.:

� give merchandise (sale)

� get cash (collect)

� Transactions must be stated in monetary terms to be entered in the books.

THE ACCOUNT

� The account is� Basic component of an accounting system

� A detailed record of changes (increases and decreases) that have occurred in a particular asset, liability, or stockholders’ (owners’) equity item during a period of time

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stockholders’ (owners’) equity item during a period of time

� Grouped into three categories, according to the accounting equation:� Assets

� Liabilities

� Owners’ equity

ACCOUNTS’ CATEGORIES

ASSETS

CashAccounts Receivables

InventoryPrepaid Expenses

Land, BuildingsEquipment, etc.

Accounts Payables

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LIABILITIES

STOCKHOLDERS’EQUITY

Accounts PayablesNotes Payables

BondsBank Loans, etc.

Common StockRetained Earnings

DividendsRevenuesExpenses

THE ACCOUNT

� Assets are the economic resources that benefit the business now and in the future

� There are different types of accounts

Within current and long-term assets

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� Within current and long-term assets

� Each of them reflects the occurred business transaction with that asset

THE ACCOUNT

� The Cash account� Shows the cash effects of a business’s transactions

� Includes money and any medium of exchange that a bank accepts at face value

The Accounts Receivable account

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� The Accounts Receivable account

� Represents a promise for future receipt

� The Inventory (Merchandise, Merchandise Inventory) account

� Is merchandise held for sale to customers

THE ACCOUNT

� The Notes Receivable account

� Is a written pledge that the customer will pay a fixed amount of money by a certain date

� Prepaid expenses accounts

Are expenses paid in advance

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� Are expenses paid in advance

THE ACCOUNT

� The Land account

� Is a record of the cost of land a business owns and uses in its operation

� The Buildings account

Is the cost of a business’s buildings, e.g., office and

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� Is the cost of a business’s buildings, e.g., office and manufacturing plant

� Equipment, Furniture, and Fixtures accounts

� Record separate asset accounts for each type of equipment

THE ACCOUNT

� Liabilities are the debts of the company

� The Notes Payable account

� Includes the amounts that the business must pay on promissory notes

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promissory notes

� The Accounts Payable account

� Represents the promise to pay off debts arising from credit purchases

� Accrued Liability accounts

� Are expenses that have not yet been paid, e.g., Interest Payable, Salary Payable, and Income Taxes Payable

THE ACCOUNT

� Stockholders’ (Owners’) equity is the owners’ claims to the assets of a corporation� A proprietorship uses a unique account

� A partnership uses separate accounts for each owner’s capital balance and withdrawals

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owner’s capital balance and withdrawals

� A corporation uses separate capital accounts for each source of capital

THE ACCOUNT

� The Common Stock account� Represents the owners’ investment in the corporation

� The Retained Earnings account� Shows the cumulative net income earned by the

corporation over its lifetime, minus cumulative net losses

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corporation over its lifetime, minus cumulative net losses and dividends

� The Dividends account� Indicates a decrease in retained earnings when

dividends are paid by the corporation

THE ACCOUNT

� Revenues� Are reported in a separate account for each type of

revenues originated as consequence of delivering goods or services to customers, e.g., Sales Revenues, Service Revenues, Rent Revenues, Interest Revenues

Expenses

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� Expenses� Are reported in a separate account for each type of

expense, e.g., Cost of Sales, Salary Expense, Rent Expense, Advertising Expense, Utilities Expense

ACCOUNTING FOR BUSINESS

TRANSACTIONS� A business transaction is any event that both

affects the financial position of the business entity and can be reliably recorded

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TRANSACTIONS

Consider the following transactions for Air & Sea Travel, Inc., and their effect

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Air & Sea Travel, Inc., and their effect on the accounting equation


TRANSACTIONS

The owners invest $50,000 of their money to begin the business, and Air & Sea Travel issues common

TRANSACTION 1

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the business, and Air & Sea Travel issues common stock to them

Assets = Liabilities + Stockholders' Equity

Cash Common Stock

(1) +50,000 +50,000


TRANSACTIONS

TRANSACTION 2

Air & Sea Travel purchases land for a future office location, paying cash of $40,000

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location, paying cash of $40,000

Assets Liabilities + Stockholders' Equity

Cash + Land Common Stock

(1) 50,000 = +50,000

(2) -40,000 + 40,000 _______

10,000 40,000 50,000


TRANSACTIONS

TRANSACTION 3

The business buys stationery and other office supplies, agreeing to pay $500 to the office-supply

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supplies, agreeing to pay $500 to the office-supply store within 30 days


Office Accounts

Cash + Supplies + Land Payable + Common Stock

Bal. 10,000 40,000 = 50,000

(3) _____ +500 _____ +500 _____

Bal. 10,000 500 40,000 500 50,000


TRANSACTIONS

TRANSACTION 4

Air & Sea Travel earns service revenue of $5,500 and collects this amount in cash

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and collects this amount in cash


Office Accounts Retained

Cash + Supplies + Land Payable + Common Stock + Earnings

Bal. 10,000 500 40,000 = 500 50,000

(4) +5,500 _____ _____ _____ _____ +5,500

Bal. 15,500 500 40,000 500 50,000 5,500


TRANSACTIONS

Air & Sea Travel performs services for customers on account for $3,000

TRANSACTION 5

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account for $3,000


Accounts Office Accounts Retained

Cash + Receivable + Supplies + Land Payable + Common Stock + Earnings

Bal. 15,500 500 40,000 = 500 50,000 5,500

(5) _____ +3,000 _____ _____ _____ _____ +3,000

Bal. 15,500 3,000 500 40,000 500 50,000 8,500


TRANSACTIONS

Air & Sea Travel pays $2,700 for the following cash expenses: office rent $1,100, employee salary

TRANSACTION 6

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expenses: office rent $1,100, employee salary $1,200, and utilities $400




Bal. 15,500 3,000 500 40,000 500 50,000 8,500

(6) -1,100 = -1,100

-1,200 -1,200

-400 _____ _____ _____ _____ _____ -400

Bal. 12,800 3,000 500 40,000 500 50,000 5,800


TRANSACTIONS

Air & Sea Travel pays $400 to the store from which it purchased $500 worth of office supplies in

TRANSACTION 7

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purchased $500 worth of office supplies in Transaction 3




Bal. 12,800 3,000 500 40,000 = 500 50,000 5,800

(7) -400 _____ _____ _____ -400 _____ _____

Bal. 12,400 3,000 500 40,000 100 50,000 5,800


TRANSACTIONS

The owners remodel their home at a cost of $30,000, paying cash from personal funds

TRANSACTION 8

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$30,000, paying cash from personal funds

This event is a transaction of the personal

entity, not the business entity

No transaction is recorded for Air & Sea Travel


TRANSACTIONS

The business collects $1,000 from a customer on account

TRANSACTION 9

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account




Bal. 12,400 3000 500 40,000 = 100 50,000 5,800

(9) +1,000 -1,000 _____ _____ _____ _____ _____

Bal. 13,400 2000 500 40,000 100 50,000 5,800


TRANSACTIONS

Air & Sea Travel sells land for a price of $22,000, which is equal to the amount it paid for the land

TRANSACTION 10

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which is equal to the amount it paid for the land




Bal. 13,400 2,000 500 40000 = 100 50,000 5,800

(10) +22,000 _____ _____ -22,000 _____ _____ _____

Bal. 35,400 2,000 500 18000 100 50,000 5,800


TRANSACTIONS

The corporation declares a dividend and pays $2,100 cash to the stockholders

TRANSACTION 11

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$2,100 cash to the stockholders




Bal. 35,400 2,000 500 18,000 = 100 50,000 5,800

(11) -2,100 _____ _____ _____ _____ _____ -2,100

Bal. 33,300 2,000 500 18,000 100 50,000 3,700


TRANSACTIONS

� The table on the next slide summarizes the 11 preceding transactions and provides the data that Air & Sea Travel will use to create its financial statements

Data for the Statement of cash flows are aligned under the

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� Data for the Statement of cash flows are aligned under the Cash account

� Income statement data appear as revenues and expenses under Retained Earnings

� The Balance sheet data are composed of the ending balances of the assets, liabilities, and stockholders’ equities

� The Statement of retained earnings, which shows net income (loss) and dividends, can be prepared from the Retained Earnings column




(1) +50,000 +50,000

(2) -40.000 +40,000

(3) +500 +500

ANALYSIS OF TRANSACTONS

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(4) +5,500 +5,500

(5) +3,000 +3,000

(6) -1.100 = -1.100

-1.200 -1.200

-400 -400

(7) -400 -400

(8) Not a transaction of the business

(9) +1,000 -1.000

(10) +22,000 -22.000

(11) -2.100 _____ _____ _____ _____ _____ -2.100

Bal. 33.300 2.000 500 18.000 100 50.000 3.700

Statement of Cash Flow Data Balance Sheet Data

FINANCIAL STATEMENTS OF

AIR & SEA TRAVEL, INC.

A IR & S E A T R A V E L , IN C .In c o m e S t a te m e n t

M o n t h E n d e d A p r i l 3 0 , 2 0 0 1

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R e v e n u e :S e r v ic e r e v e n u e $ 8 ,5 0 0

E x p e n s e s :S a la r y e x p e n s e $ 1 ,2 0 0R e n t e x p e n s e 1 ,1 0 0U t i l i t ie s 4 0 0T o t a l e x p e n s e s 2 ,7 0 0

N e t In c o m e $ 5 ,8 0 0

FINANCIAL STATEMENTS OF

AIR & SEA TRAVEL, INC.



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AIR & SEA TRAVEL, INC.Balance SheetApril 30, 2001

Assets Liabilities

FINANCIAL STATEMENTS OF AIR & SEA TRAVEL, INC.

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Assets Liabilities

Cash $33,300 Accounts payable $ 100Accounts receivable 2,000Office supplies 500 Stockholders’ EquityLand 18,000 Common stock 50,000

Retained earnings 3,700 Total stockholders’ equity 53,700

_______ Total liabilities and Total assets $53,800 stockholders’ equity $53,800

AIR & SEA TRAVEL, INC.Statement of Cash Flows


Cash flows from operating activities:Collections from customers $ 6,500Payments to suppliers and employees (3,100) Net cash inflow from operating activities 3,400

Cash flows from investing activities:Acquisition of land $(40,000)

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Acquisition of land $(40,000)Sale of land 22,000 Net cash outflow from investing activities (18,000)

Cash flows from financing activities:Issuance (sale) of stock $ 50,000Payment of dividends (2,100) Net cash inflow from financing activities 47,900

Net increase in cash $ 33,300Cash balance, April 1, 2001 0Cash balance, April 30, 2001 $ 33,300

Chapter 2 - Slides [Modo de Compatibilidad]

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