1. Financial Statements for a Partnership
Chapter 16
Financial Statements for a Partnership

2. OBJECTIVES:
Define accounting terms related to financial statements for a merchandising business organized as a proprietorship.
Identify accounting concepts and practices related to financial statements for a merchandising business organized as a proprietorship.
Prepare an income statement for a merchandising business organized as a proprietorship.

3. OBJECTIVES:
Analyze an income statement using component percentages for a merchandising business organized as a proprietorship.
Prepare a distribution of net income statement and an owner’s equity statement for a merchandising business organized as a proprietorship.
Prepare a balance sheet for a merchandising business organized as a proprietorship.

4. Adequate Disclosure Consistent Reporting Financial Statements
Provide information about:
the business’s financial condition.
changes in financial condition.
The progress of operations.
Consistent Reporting
Financial information must be reported in the same manner each fiscal period.

5. Four Financial Statements for a Partnership
Income Statement
Distribution of Net Income or Loss
Owner’s Equity Statement
Balance Sheet

6. Chapter 16-1: Income Statement
Used to report financial PROGRESS
Section 1:
Revenue
Section 2:
Cost of Merchandise Sold
Total original price of all merchandise sold (Historical Price)
AKA: cost of goods sold or cost of sales
Gross Profit on Sales
Section 3:
Expenses
Net Income or Loss
Compare past statements to figure out reasons for increase/decrease in net income

7. INCOME STATEMENT INFORMATION ON A WORK SHEET
Lesson 16-1(GJ)
INCOME STATEMENT INFORMATION ON A WORK SHEET
Copy to Income Statement

8. PREPARING AN INCOME STATEMENT FOR A MERCHANDISING BUSINESS1 2 3
1. Write the income statement heading on three lines.
2. Prepare the revenue section.
3. Prepare the Cost of Merchandise Sold section.

9. + Plus Purchases (Income Stmt column)
Cost of Merchandise
Beginning Merchandise Inventory (TRIAL Balance)
+ Plus Purchases (Income Stmt column)
- Minus Ending Merchandise Inventory (Balance Sheet column)
= Equals Cost of the Merchandise that was Sold
Merchandise can be abbreviated Mdse. or Merch.

10. COMPLETING AN INCOME STATEMENT FOR A MERCHANDISING BUSINESS8
4. Calculate the gross profit on sales.
= Revenue – Cost of Merchandise
5. Prepare the expenses section. 4
Calculate the net income.
= Gross Profit on sales – Total Expenses 5
7. Rule double lines.
8. Calculate the component percentages. 6 7

11. TERMS REVIEW cost of merchandise sold gross profit on sales TO DO:
Work Together, pg 409
On your own, pg 409
Application Problem 16-1, pg 422

12. Chapter 16-2: Component Percentages
Relationship between income statement components and sales
Sales = 100%
Example:
Cost of Merchandise Component Percentage
= Cost of Merchandise ÷ Sales
Gross Profit must be large enough to cover total expenses and the desired amount of net income

13. ANALYZING AN INCOME STATEMENT SHOWING A NET INCOME
Lesson 16-1(GJ)
ANALYZING AN INCOME STATEMENT SHOWING A NET INCOME
Acceptable Omni Import
Industry Component
Standards Percentages
Sales 100% 100.0%
Cost of merchandise sold not more than 50.0% 48.6%
Gross profit on sales not less than 50.0% 51.4%
Total expenses not more than 35.0% 34.9%
Net income not less than 15.0% 16.5%
Each % represents the amount of each sales dollar that is considered acceptable.

14. ANALYZING AN INCOME STATEMENT SHOWING A NET LOSS
Analyze each
component percentage:
Cost of Merchandise
Gross Profit
Total Expenses
Net Income/Loss

15. Corrections for Unacceptable Component Percentages
Gross Profit on Sales:
Increase sales revenue
Increase mark-up
Decrease cost of merchandise sold
Buy in larger quantities??
BOTH: Increase sales revenue and decrease cost of sales
Very small increase/decrease if doing both
Expenses:
Reduce expenses that are beyond industry standards
Net Income:
Once all other components are within acceptable range net income will be acceptable

16. TO DO:
Work Together, pg 409
On your own, pg 409
Application 16-2

17. Chapter 16-3: Distribution of Net Income and Equity Statements
May be divided in any way agreed upon by partners in partnership agreement
Equal 50% - 50%
Unequal 60% - 40%
‘Articles of Partnership’ – official business agreement - must state how profit or loss is shared.
Shown on a Distribution of Net Income Statement

18. PREPARING A DISTRIBUTION OF NET INCOME STATEMENT
Lesson 16-1(GJ)
PREPARING A DISTRIBUTION OF NET INCOME STATEMENT 1 2 3 4 5 6 7 8
1. Heading
5. Second Partner’s Share of Net Income
2. First Partner’s Name
6. Net Income
3. First Partner’s Share of Net Income
7. Total Net Income
4. Second Partner’s Name
8. Double Lines

19. DISTRIBUTION OF NET INCOME STATEMENT WITH UNEQUAL DISTRIBUTION OF EARNINGS
Same steps, just need a description of how earnings are shared

20. Owner’s Equity Statement
Same as detailed owner’s equity on balance sheet
Shows each partner’s equity separately
Summarizes changes in OE during fiscal period
3 factors for change:
Investments
Withdrawals
Net income/ net loss
What you need:
Distribution of net income/loss – Dist. of Net Income
Beginning balance of capital – General ledger
Additional investments – General ledger
Each partner’s withdrawals of asset – General ledger

21. OWNERS’ EQUITY STATEMENT (with net income)
Lesson 16-1(GJ)
OWNERS’ EQUITY STATEMENT (with net income) 1 2 3 4 5 6 7
1. Heading
5. Second Partner’s Ending Capital
2. First Partner’s Name
6. Total Owners’ Equity
3. First Partner’s Ending Capital
7. Double Lines
4. Second Partner’s Name

22. OWNERS’ EQUITY STATEMENT WITH AN ADDITIONAL INVESTMENT AND A NET LOSS

23. TERMS REVIEW distribution of net income statement
owner’s equity statement
TO DO:
Work Together, pg 415
On your own, pg 415

24. Chapter 16-4: Balance Sheet
Reports business’s financial CONDITION on a SPECIFIC DATE
BALANCE SHEET INFORMATION ON A WORK SHEET

25. FIRST TWO SECTIONS OF A BALANCE SHEET FOR A MERCHANDISING BUSINESS1
1. Prepare the heading.
2. Prepare the assets section. 2
3. Prepare the liabilities section. 3

26. COMPLETING A BALANCE SHEET FOR A MERCHANDISING BUSINESS
4. Prepare the owners’ equity section.
5. Total the liabilities and owners’ equity sections.
6. Verify the accuracy by comparing totals. 7 6
7. Rule double lines.
*Info obtained from Owner’s Equity Statement 4 5

27. Supporting Statements
Schedule of Accounts Payable and Receivable.
Provide details for each vendor
AKA supplementary report or exhibit

28. TERMS REVIEW supporting schedule TO DO: Work Together, pg 420
Lesson 16-1(GJ)
TERMS REVIEW
supporting schedule
TO DO:
Work Together, pg 420
On your own, pg 420
App. Prob. 16-3, 16-4, 16-5, pg 423