1. BusinessAllstars.com1 Financial Statements Copyright © 2007 by WACGA All right reserved This material may not be used or reproduced without permission of the WACGA BusinessAllstars.com Presents

2. BusinessAllstars.com2 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:

3. BusinessAllstars.com3 40006600 4000 6600 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

4. BusinessAllstars.com4 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.

5. BusinessAllstars.com5 -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.

6. BusinessAllstars.com6 -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.

7. BusinessAllstars.com7 The ending balance on the Retained Earnings Statement agrees with the ending balance of the Retained Earnings Account.

8. BusinessAllstars.com8 -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.

9. BusinessAllstars.com9 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.

10. BusinessAllstars.com10 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.

11. BusinessAllstars.com11 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.

12. BusinessAllstars.com12 Proceed to the next program: BAFS.exe To play the Accounting/financial statement game. You will be asked to post all the accounting entries and produce Financial Statements.