Financial Statements for a Corporation CHAPTER 15 Financial statements provide the primary source of information needed by owners and managers to make decisions about future business activities.

INCOME STATEMENT INFORMATION ON A WORK SHEET page 448

3 6.Contra account amounts REVENUE SECTION OF AN INCOME STATEMENT FOR A MERCHANDISING BUSINESS Heading 7.Contra account total 3.Title of revenue account 8.Net Sales 4.Sales amount9.Net sales amount 5.Less contra accounts 2.Revenue section page 449 Total Sales - Sales Discount - Sales Returns & Allow = Net Sales

4 COST OF MERCHANDISE SOLD SECTION OF AN INCOME STATEMENT FOR A MERCHANDISING BUSINESS page Cost of Merchandise Sold section 2.Beginning inventory 3.Purchases section 4.Total cost of merchandise available for sale 5.Ending inventory 6.Cost of merchandise sold Cost of Merchandise Sold - The original price of all merchandise sold during a fiscal period.

5 COMPLETING AN INCOME STATEMENT FOR A MERCHANDISING BUSINESS page Component percentage 6.Double lines 5.Net Income after Federal Income Tax 4.Less Federal Income Tax Expense 3.Net Income before Federal Income Tax 2.Expenses section 1.Gross Profit on Sales The revenue remaining after cost of merchandise sold has been deducted - Gross Profit on Sales

LESSON 15-2 Analyzing an Income Statement USING COMPONENT PERCENTAGES Hobby Shack analyzes the relationship between Sales and four income statement components: 1.Cost of Merchandise Sold - Want to be low 2.Gross Profit on Sales - Want to be high 3.Total Expenses - Want to be low 4.Net Income Before Federal Income Tax - Want to be high

7 ANALYZING AN INCOME STATEMENT SHOWING A NET LOSS page 457

8 Price-Earnings Ratio = Earnings per Share ÷ Market Price per Share Earnings per Share = Number of Shares Outstanding ÷ Net Income after Federal Income Tax FINANCIAL RATIOS - A comparison between two items of financial information. page 459 Earnings per Share - The amount of net income after federal income tax belonging to a single share of stock. Measures co’s performance. Price-Earnings Ratio - Relationship between the market value per share & earnings per share of a stock. Shows price of stock relative to earnings. $32.13=2,500÷$80, =$32.13÷$345.00

STATEMENT OF STOCKHOLDERS’ EQUITY page Heading 2. Capital Stock and Par Value 5.Total stock issued at the end of the year 3.Stock at the beginning of the year 4.Stock issued during the year Shows changes in a corporation’s ownership for a fiscal period. Contains two sections - Capital Stock & Retained Earnings. Par Value - A value assigned to a share of stock & printed on a stock certificate.

10 RETAINED EARNINGS SECTION OF THE STATEMENT OF STOCKHOLDERS’ EQUITY page Dividends declared Beginning balance 7.Total stockholders’ equity 6.Ending balance3.Net income after federal income tax 5.Increase in retained earnings 1.Retained Earnings

BALANCE SHEET INFORMATION ON A WORK SHEET page 464

12 CURRENT ASSETS SECTION OF A BALANCE SHEET page Book value of accounts receivable 4. Remaining current asset accounts1. Heading 2. Begin assets section 5. Current assets

13 PLANT ASSETS SECTION OF A BALANCE SHEET page Write the heading Plant Assets. 2.Calculate the book value of office equipment. 3.Use the same procedure to calculate the book value of store equipment. 4.Calculate total plant assets. 5.Calculate total assets.

14 LIABILITIES SECTION OF A BALANCE SHEET 1 3 page Heading 2.Account title and amount of each current liability 3.Total liabilities 2 Current Liabilities - Liabilities due within a short time, usually with in a year. Long Term Liabilities - Liabilities owed for more than a year (ex: mortgage)

15 STOCKHOLDERS’ EQUITY SECTION OF A BALANCE SHEET 1 page Total liabilities and stockholders’ equity Capital stock 1.Stockholders’ Equity 3.Retained earnings 4.Total stockholders’ equity 6.Double rules 6

16 COMPLETED BALANCE SHEET page 469 (continued on next slide)

17 COMPLETED BALANCE SHEET page 469 (continued from previous slide) Don’t forget about Schedule of Accounts Payable & Receivable!