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Financial Statements
Copyright © 2004 by Gaylen BunkerAll right reserved
This material may not be used or reproducedwithout permission of Gaylen Bunker
BusinessAllstars.comPresents
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Framed for Financial Statements:
Beginning Balance Sheet Data
Income Statement &
Retained Earnings Data
Ending Balance Sheet Data
Statement of Cash Flows
Data
(Direct method)
The spreadsheet provides all of the data necessary to be reorganized into financial statements. The four financial statements are:
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40006600
4000
6600
1000
1000
“Current Assets” are a group of assets that will be converted to cash or used
up within one year. They are listed in order of liquidity
(how soon this will happen).The Balance Sheet shows that Total Assets
equal Total Claims (Total Liabilities and
Equity) for both beginning balances and
ending balances.
“Current Liabilities” are the sum of all claims that will be converted to cash or liquidated within one
year.
“Total Asset” is the total of Current Assets added to Non-Current Assets
“Total Liabilities and Equity” summarizes all
Current Liabilities, Long-term Debt, and Equity
Accounts.
While playing the game, beginning and ending balances will be randomly highlighted in yellow. You will click on the location on the Balance Sheet, to transfer each amount.
These are just four of the balances transferred. You will need to transfer all of them.
-2100
-2100
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The result of transferring all the balances is that all balances on the spreadsheet have been highlighted in yellow and the Balance Sheet Beginning and Ending Balances are
complete. Note that Total Assets and Total Liabilities equity each other.
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-2000
-3000
-2000
-3000 6000 “Gross Margin is the result
of subtracting Cost of Goods Sold from Revenue.
“Operating Expenses are listed together and when
subtracted from the Gross Margin results in Operating
income.
Income Taxes is subtracted from Operating Income to
generate Net Income.
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-100
-100 300
“The result of the Income Statement is Net Income. On the Retained
Earnings Statement, Net Income is added to the Beginning Balance of
Retained Earnings.
“Then Dividends Paid are subtracted to show the Ending Balance of
Retained Earnings.
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The ending balance on the Retained Earnings Statement agrees with the
ending balance of the Retained Earnings Account.
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-2000
-2000
-2000
-2000
3000
“Operating Cash flows” is the actual cash collected for Revenue or actual cash paid
for Expenses. It is not the Revenue or Expenses themselves.
“Investing Cash flows” is any cash paid or received for Fixed Assets and Long-term
investments.
“Financing Cash flows” is any cash transactions relating to Common Stock or
Long-term Debts and cash paid out as Dividends.
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By subtracting all non-cash assets from both sides of the equal sign, they are moved to the right of the equal sign and
their sign is changed.
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3000-2000
3000
-2000
-500
The difference between the direct and indirect approaches is primarily in the Operating Cashflow section. The direct approach restates the income
statement on a strictly cash basis while the indirect approach shows the difference from Net Income to Operating Cash Flow as the change in
depreciation and changes in the current asset and current liability accounts.
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The direct method uses information from the change in the cash account, while the indirect method uses information from the change in all the non-cash
account. The sub-totals for each section of the two statements are identical.
The change in Retained Earnings
had two components: Net
Income that is shown in the
Operating Cashflow section, and
Dividends paid that is shown in the
Financing Cashflow section.
Notice the reconciliation of cash at the bottom of both statements where the change in cash is added to the beginning to equal the ending cash balances .
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