Chapter 7: Fixed Assets Depreciation and Financial Statements

Financial Statements When you installed Peachtree Complete Accounting 2002, Release 9.0, you also installed Peachtree’s Fixed Assets program. There is another icon on your desktop that shows “Peachtree Fixed Assets.” In Chapter 7, you will see how this feature works. In Chapter 7, you will also learn about Peachtree’s financial statements. Once journal entries have been recorded and posted, financial statements are automatically calculated by Peachtree. Business managers and owners have the primary responsibility for the organization. They depend on accounting information in the form of financial statements to understand what is happening. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Software Objectives, p. 201 Restore data from Exercise 6-2. This back up was made on page 198. Learn about Peachtree’s fixed assets feature. Explore Peachtree’s Help feature. Print the financial statements. Make an optional backup of Chapter 7. The backups that were made in Chapter 6 include the data for this chapter. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Web Objectives, p. 201 Use your Internet browser to go to the book’s web site at www.mhhe.com/business/accounting/yacht2002 Complete the Internet activity for “Peachtree Software.” Complete the steps shown for this activity. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Peachtree’s Fixed Assets, pp. 201-206 Assets used to generate revenue for a period longer than one year are called fixed assets. The cost of fixed assets is divided and expensed over the useful life of assets. The process of spreading the cost of a fixed asset over its useful life is called depreciation. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Peachtree’s Fixed Assets, pp. 201-206 Once fixed assets are set up, Peachtree’s Fixed Assets feature calculates the journal entry for depreciation automatically. This lets you track both the original cost of the asset (in its Fixed Asset account) and the accumulated depreciation to date on your balance sheet. The journal entry is automatically posted in Peachtree Complete Accounting. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Financial Statements, pp. 207-210 In Chapter 7, you will learn about PCA’s financial statements. Once journal entries have been recorded and posted, Peachtree automatically calculates financial statements. Since business managers and owners have the primary responsibility for the organization, they depend on accounting information in the form of financial statements to understand what is happening. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Balance Sheet, p. 208 A balance sheet is a list of assets, liabilities, and capital of a business entity as of a specific date, such as the last day of an accounting period or the last day of the year. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Gross Profit by Departments, p. 208 A departmentalized accounting system provides information that management can use to evaluate the profitability or cost effectiveness of a department’s activities. The Gross Profit by Departments financial statement is a custom report designed for Bellwether that details each department’s year-to-date gross profit as of the current month. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Income Statement, pp. 208-209 The income statement is a summary of the revenues and expenses a company accrues over a period of time, such as an accounting period or a year. Only revenue and expense accounts are displayed on the income statement. In addition to dollar figures, Peachtree’s income statement also includes percentage-of-revenue columns for the current month. The percentages shown for each expense, total expenses, and net income (or net loss) indicate the relationship of each item to total revenues. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Statement of Cash Flow, p. 209 The cash flow from operations is roughly the same as income from operations plus depreciation, depletion, and adjusted for any other operating transactions that had no effect on cash during the period. The statement of cash flow also reports cash transactions associated with the purchase or sale of fixed assets (Investing Activities) and cash paid to or received from creditors and owners (Financial Activities). McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Statement of Retained Earnings, p. 209 The statement of retained earnings shows beginning and ending retained earnings amounts, adjustments made to retained earnings within the report period, and the detail for all Equity-get closed accounts. The retained earnings balance is the cumulative, lifetime earnings of the company less its cumulative losses and dividends. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Statement of Changes in Financial Position, p. 210 The statement of changes describes changes in a company’s financial position that may not be obvious from other financial statements. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Interrelationship of Financial Statements, p. 210 No single financial statement tells the entire story. The income statement indicates how much revenue a business has earned during a specific period of time, but it says nothing about how much of that amount has or has not been received in cash. For information about cash and accounts receivable, you have to look at the balance sheet, statement of cash flow, and statement of changes in financial position. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Peachtree Tip Since you backed up all the data necessary for the financial statements in Chapter 6, there is no need to back up again in Chapter 7. The Exercise 6-2 back up should be saved for use with Chapters 15, 17, and 18. Peachtree Fixed Assets is a subsidiary module to the main program, Peachtree Complete Accounting. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Backing Up Chapter 7* Backup Name KB Page Nos. A:\Chapter 7 789 KB 225 *The Chapter 7 backup is optional. All the data for Chapter 7 is stored on the Exercise 6-2.ptb backup that was made on page 198. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Chapter 7 Topics Software & web objectives, p. 201 Peachtree’s Fixed Assets, pp. 201-203 a. Browsing for assets, pp. 203-206 Financial Statements, pp. 207-211 a. Balance Sheet, p. 208 b. Gross Profit by Department, p. 208 c. Income Statement, pp. 208-209 d. Statement of Cash Flow, pp. 209 e. Statement of Retained Earnings, p. 209 f. Statement of Changes in Financial Position, p. 210 g. Interrelationship of Financial Statements, p. 210 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Chapter 7 Topics Getting Started, p. 211 Using Peachtree’s Help Feature, pp. 211-214 Printing the Financial Statements, pp. 215-225 Backing up Chapter 7 data (Optional Backup), p. 225 Internet activity, p. 225 Summary and Review, p. 226 a. Going to the net, p. 226 b. True/make true questions, pp. 227-229 c. Exercise 7-1, p. 229 d. Exercise 7-2, p. 229 e. Chapter 7 index, p. 230 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Starting Peachtree Fixed Assets, pp. 202-203 Start Windows, then PCA in the usual way. Start the sample company, Bellwether Garden Supply. Minimize the “Peachtree Accounting: Bellwether Garden Supply” window. From your Windows desktop, double-click on the “Peachtree Fixed Assets” icon. The “Open” window appears. In the “Company Name” box, select Bellwether Garden Supply. Click on <OK>. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Browsing for Assets, p. 204 From the menu bar, click on Browse, then select “By Asset Class.” McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Browsing for Assets continued, p. 204 If necessary, click on the square in the “Asset Browse – By Asset Class” title bar to enlarge the window. Read the instructions on pages 204-205. Complete steps 3 – 7. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Browsing for Assets continued p. 206 From the menu bar, click on Reports, then select Depreciation, General Journal Entries. The “General Journal Entries Report” window pops up. Click on the “Screen” icon. Complete step 9 on pages 206. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Browsing for Assets concluded p. 206 All the depreciation expense/accumulated depreciation entries for Bellwether Garden Supply. Click on File, Exit to close Peachtree Fixed Assets. You are returned to your desktop. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

“Help Topics” window, pp. 211-212 Click on Help, Contents and Index. If necessary, click on the “Index” folder tab. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Help Topics” continued, pp. 212-213 Click on the “Type in the keyword to find:” box. Type balance sheet. Click on “financial statements” to highlight it. Click on the <Display> button. Click on “Post” to save this invoice. Then, return to the menu bar. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Help Topics” concluded, p. 214 The right pane shows information about the balance sheet. Read steps 4 and 5 on page 214. Then, close the windows to return to the menu bar. Click on “Post” to save this invoice. Then, return to the menu bar. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Select a Report, p. 215 Close the windows to return to the menu bar. Click on Reports, Financial Statements. The <Standard> Balance Sheet is highlighted. Standard refers to statements that Peachtree has already set up. Click on the “Print” icon. Then, click on OK two times. The balance sheet starts to print. Compare it with the one shown on pp. 216 - 217. Click on the “Print” icon. Then, click on OK two times. The Gross Profit by Departments report prints. Compare it with the one shown on p. 213. Close the windows to return to the menu bar. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Gross Profit by Departments, p. 218 From the “Select a Report” window, highlight Gross Profit by Departments. Click on the “Print” icon. Then, click on OK two times. The Gross Profit by Departments report prints. Compare it with the one shown on p. 219. Close the windows to return to the menu bar. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

<Standard> Income Statement, p. 220 From the “Select a Report” window, highlight <Standard> Income Statement. Make the selections to print. Compare your income statement with the one shown on p. 221. Close the windows to return to the menu bar. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Statement of Cash Flow, p. 222 Follow the steps on page 222 to print a statement of cash flow. Compare your statement of cash flow to the one shown on page 222. Click on the “Print” icon. Then, click on OK two times. The Gross Profit by Departments report prints. Compare it with the one shown on p. 213. Close the windows to return to the menu bar. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Statement of Retained and Statement of Changes in Financial Position, p. 223 and 224 Follow the steps on page 223 to print a statement of retained earnings. Compare your statement to the one shown. Follow the steps on page 224 to print a statement of changes in financial position. Compare your statement of changes in financial position to the one shown on page 224. Click on the “Print” icon. Then, click on OK two times. The Gross Profit by Departments report prints. Compare it with the one shown on p. 213. Close the windows to return to the menu bar. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Glossary of Terms, Chapter 7 McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Fixed assets, p. 201 Assets used to generate revenue for a period longer than one year. For example, a building is classified on the balance sheet as a fixed asset because the building will benefit the business over a long period of time. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Depreciation, p. 201 The cost of fixed assets is divided and expensed over the useful life of the assets. The process of spreading the cost of a fixed asset over its useful life of more than one year is called depreciation. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Contra account, pp. 201-202 In accounting, you debit depreciation expense and credit a contra account called accumulated depreciation. Accumulated depreciation is a contra account because its balance is subtracted from an asset. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Net Income, p. 208 A net income results when revenues exceed expenses. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Net loss, p. 209 A net loss results when expenses exceed revenues. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Internet Activity, p. 225 1 Go to the book’s web site at www.mhhe.com/business/accounting/yacht2002 2 In the “Student Center” list, link to Internet Activities. 3 Link to WEB EXERCISES PART 1. 4 Scroll down the screen to “PEACHTREE SOFTWARE.” Read steps 1 and 2. 5 Follow the steps shown on the books web site to complete the Internet activity. 6 Use a word processing program to write a summary for each web site visited. Your summaries should be no more than 75 words. McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003

Going to the Net, p. 226 Acces the Small Business Administration web site at http://www.onlinewbc.gov/docs/finance/fs_balsheet1.html Link to Balance Sheet Introduction. On a balance sheet, what do the liabilities and net worth represent? On the balance sheet, what do the assets represent? McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2003