Chapter 16 Vocab Test Review Try this technique… Improve recall and increase understanding: Take notes to summarize your learning and find connections. This approach is similar to the trick teachers often use of telling students they are welcome to bring one 3″ x 5″ card of notes to use during the final exam. Most students discover during the exam that they don’t need most (or all) of the information they managed to cram onto the card. Why? Because creating the card required them to reflect on the material, find connections within the material, decide what was most important, then write the essence of it all down to make it fit on one small card. The process of summarizing and finding connections, then writing them down, will help you to “understand” material. “Taking notes” may seem similar, but it all too often does not involve summarizing or finding connections. Summarizing and finding connections require reflection – you must think about the new material and how it relates (if at all)  to experiences you have had and/or other topics you already understand. The discovery of connections and/or relationships are what lead to both long term recall and understanding. . .

Uses of Financial Statements Lesson 16-1 Uses of Financial Statements LO1 A corporation prepares an income statement and a balance sheet similar to those used by a proprietorship. A corporation adds a statement of stockholders’ equity.

Preparing an Income Statement from a Trial Balance Lesson 16-1 Preparing an Income Statement from a Trial Balance LO1

Revenue Section of an Income Statement for a Merchandising Business Lesson 16-1 Revenue Section of an Income Statement for a Merchandising Business LO1 The revenue earned by a business from its normal business operations is called operating revenue. The amount of sales, less sales discounts and sales returns and allowances, is called net sales.

Lesson 16-1 Operating Revenue Section of an Income Statement for a Merchandising Business LO1 Less Contra Accounts Contra Account Total 7 Net Sales Amount 9

Gross profit is often referred to as gross profit on sales. Lesson 16-1 Cost of Merchandise Sold Section of an Income Statement for a Merchandising Business LO1 The original price of all merchandise sold during a fiscal period is called the cost of merchandise sold. Cost of merchandise sold is also known as cost of goods sold or cost of sales. The operating revenue remaining after cost of merchandise sold has been deducted is called gross profit. Gross profit is often referred to as gross profit on sales.

Lesson 16-1 Cost of Merchandise Sold Section of an Income Statement for a Merchandising Business LO1 Cost of Merchandise Sold Section 1 Beginning Inventory 2 Vertical Analysis Percentages 8 Purchases Section 3 Ending Inventory 5 Total Cost of Merchandise Available for Sale 4 Cost of Merchandise Sold 6 Gross Profit 7

Completing an Income Statement for a Merchandising Business Lesson 16-1 Completing an Income Statement for a Merchandising Business LO1 The expenses incurred by a business in its normal operations are called operating expenses. The operating revenue remaining after the cost of merchandise sold and operating expenses have been deducted is called income from operations. Income from operations is also referred to as operating income.

Completing an Income Statement for a Merchandising Business Lesson 16-1 Completing an Income Statement for a Merchandising Business LO1 Operating Expenses Section 1 Vertical Analysis Percentages 8 Income from Operations 2 Other Revenue Section 3 Net Income before Federal Income Tax 4 Less Federal Income Tax Expense 5 Double Rules 7 Net Income after Federal Income Tax 6

Lesson 16-2 Financial Statements LO2 A financial statement that shows changes in a corporation’s ownership for a fiscal period is called a statement of stockholders’ equity.

Stockholders’ Equity Information (3 Sources) Lesson 16-2 Stockholders’ Equity Information (3 Sources) LO2 Net Income Changes in Capital Stock Retained Earnings & Dividends

Capital Stock Section of the Statement of Stockholders’ Equity Lesson 16-2 Capital Stock Section of the Statement of Stockholders’ Equity LO2 A value assigned to a share of stock and printed on the stock certificate is called par value. When issuing shares of stock, a corporation can assign any par value allowed by laws in the state in which it incorporates.

Capital Stock Section of the Statement of Stockholders’ Equity Lesson 16-2 Capital Stock Section of the Statement of Stockholders’ Equity LO2 Stock Issued During the Year Stock at Beginning of Year Total Stock Issued

Retained Earnings Section of the Statement of Stockholders’ Equity Lesson 16-2 Retained Earnings Section of the Statement of Stockholders’ Equity LO2 Retained Earnings Section 1 Net Income after Federal Income Tax 3 Beginning Balance 2 Increase in Retained Earnings 5 Dividends Declared 4 Ending Balance 6 Total Stockholders’ Equity 7

Balance Sheet Information on a Trial Balance Lesson 16-3 Balance Sheet Information on a Trial Balance LO3 An adjusted trial balance is the source of info for creating a balance sheet

Current Assets Section of a Balance Sheet Lesson 16-3 Current Assets Section of a Balance Sheet LO3 Current Assets Section 2 Heading 1 Book Value of Accounts Receivable 3 Remaining Current Asset Accounts 4 Total Current Assets 5

Plant Assets Section of a Balance Sheet Lesson 16-3 Plant Assets Section of a Balance Sheet LO3 Book Value of Office Equipment 2 Plant Assets Section 1 Book Value of Store Equipment 3 Total Plant Assets 4 Total Assets 5

Liabilities Section of a Balance Sheet Lesson 16-3 Liabilities Section of a Balance Sheet LO3 Liabilities are classified according to the length of time until they are due. Liabilities due within a short time, usually within a year, are called current liabilities. Liabilities owed for more than a year are called long-term liabilities.

Liabilities Section of a Balance Sheet Lesson 16-3 Liabilities Section of a Balance Sheet LO3 Liabilities Section 1 Account Title and Amount of Each Current Liability 2 Total Liabilities 3

Stockholders’ Equity Section of a Balance Sheet Lesson 16-3 Stockholders’ Equity Section of a Balance Sheet LO3 Stockholders’ Equity Section 1 Retained Earnings 3 Capital Stock 2 Double Rule 6 Total Stockholders’ Equity 4 Total Liabilities and Stockholders’ Equity 5

Completed Balance Sheet Lesson 16-3 Completed Balance Sheet LO3

Supporting Reports for a Balance Sheet Lesson 16-3 Supporting Reports for a Balance Sheet LO3 A report prepared to give details about an item on a principal financial statement is called a supporting schedule.

Closing Entries A corporation records four closing entries: Lesson 16-4 Closing Entries LO4 A corporation records four closing entries: 1. A closing entry for income statement accounts with credit balances (revenue and contra-cost accounts). (S) 2. A closing entry for income statement accounts with debit balances (cost, contra revenue, and expense accounts). (E) 3. A closing entry to record net income or net loss in the Retained Earnings account and close the Income Summary account. (N) 4. A closing entry for the Dividends account. (D)

Closing Entry for Accounts with Credit Balances (S) Lesson 16-4 Closing Entry for Accounts with Credit Balances (S) LO4 1 Debit to Close Credit to Income Summary 2

Closing Entry for Income Statement Accounts with Debit Balances (E) Lesson 16-4 Closing Entry for Income Statement Accounts with Debit Balances (E) LO4 2 Credit to Close Income summary 1 Debit to Income Summary 3

Closing Entry to Record Net Income (N) Lesson 16-4 Closing Entry to Record Net Income (N) LO4 Debit Income Summary Credit Retained Earnings

Closing Entry for Dividends (D) Lesson 16-4 Closing Entry for Dividends (D) LO4 Debit Retained Earnings Credit Dividends

Completed Closing Entries for a Corporation Recorded in a Journal Lesson 16-4 Completed Closing Entries for a Corporation Recorded in a Journal LO4

General Ledger After Closing Entries Are Posted Lesson 16-5 General Ledger After Closing Entries Are Posted LO5

Post-Closing Trial Balance Lesson 16-5 Post-Closing Trial Balance Proves the equality of debits and credits after posting. LO5 Heading 1 2 Accounts with Balances 3 Account Balances Double Rule 6 Totals 4 Column Totals 5

Lesson 16-5 Accounting Cycle for a Merchandising Business Organized as a Corporation LO5 1. Source documents are checked for accuracy, and transactions are analyzed. 1 2 2. Transactions are recorded in journals. 12 3. Journal entries are posted to the accounts payable ledger, the accounts receivable ledger, and the general ledger. 3 3 4. Schedules of accounts payable and accounts receivable are prepared from the subsidiary ledgers. 4 5. An unadjusted trial balance is prepared from the general ledger. 11 5 6. Adjusting entries are journalized. 9 7. Adjusting entries are posted to the general ledger. 8. An adjusted trial balance is prepared from the general ledger. 10 6 9. Financial statements are prepared from the adjusted trial balance. 8 10. Closing entries are journalized. 7 11. Closing entries are posted to the general ledger. 12. A post-closing trial balance is prepared from the general ledger.

Even better: It’s the last chapter!  The End Even better: It’s the last chapter! 