Chapter 7: Chapter 7: Financial StatementsFinancial Statements

Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Financial StatementsFinancial StatementsIn Chapter 7, you learn about Sage 50’s financial In Chapter 7, you learn about Sage 50’s financial statements. Once journal entries have been recorded statements. Once journal entries have been recorded and posted, financial statements are automatically and posted, financial statements are automatically calculated by Sage 50. calculated by Sage 50. In Chapters 1 through 6, you explored the sample In Chapters 1 through 6, you explored the sample company, Bellwether Garden Supply. You learned how company, Bellwether Garden Supply. You learned how SCA’s user interface works and how to navigate the SCA’s user interface works and how to navigate the software. You also journalized and posted various types software. You also journalized and posted various types of transactions. of transactions. Beginning in Chapter 9, you will learn how to use these Beginning in Chapter 9, you will learn how to use these features to set up service businesses. Then, in Chapter features to set up service businesses. Then, in Chapter 12, you will set up merchandising businesses. 12, you will set up merchandising businesses. In Parts 2 through 4 of the textbook, you set up 12 In Parts 2 through 4 of the textbook, you set up 12 businesses which include service, merchandising, businesses which include service, merchandising, nonprofit, and manufacturing businesses.nonprofit, and manufacturing businesses.

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Balance Sheet, p. 206Balance Sheet, p. 206

A balance sheet is a list of assets, A balance sheet is a list of assets, liabilities, and capital of a business liabilities, and capital of a business entity as of a specific date, such as the entity as of a specific date, such as the last day of an accounting period or the last day of an accounting period or the last day of the year.last day of the year.

The March 31, 2013 balance sheet is The March 31, 2013 balance sheet is shown on pages 213-214.shown on pages 213-214.

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Gross Profit by Departments, pp. 206-207Gross Profit by Departments, pp. 206-207

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

The Year-to-Date Departmental Gross Profit The Year-to-Date Departmental Gross Profit Totals are shown on page 215.Totals are shown on page 215.

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Income Statement, p. 207Income Statement, p. 207

The income statement is a summary of the revenues and The income statement is a summary of the revenues and expenses a company accrues over a period of time, such expenses a company accrues over a period of time, such as an accounting period or a year. Only revenue and as an accounting period or a year. Only revenue and expense accounts are displayed on the income statement.expense accounts are displayed on the income statement.

In addition to dollar amounts, Sage 50’s income statement In addition to dollar amounts, Sage 50’s income statement also includes percentage-of-revenue columns for the also includes percentage-of-revenue columns for the current month. The percentages shown for each expense, current month. The percentages shown for each expense, total expenses, and net income (or net loss) indicate the total expenses, and net income (or net loss) indicate the relationship of each item to total revenues.relationship of each item to total revenues.

The income statement is shown on page 218.The income statement is shown on page 218.

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Statement of Cash Flow, p. 207Statement of Cash Flow, p. 207

The statement of cash flow summarizes the effects The statement of cash flow summarizes the effects on cash of the operating, investing, and financing on cash of the operating, investing, and financing activities of a company for a period and the year to activities of a company for a period and the year to date. date.

The statement of cash flow reports cash The statement of cash flow reports cash transactions associated with the purchase or sale transactions associated with the purchase or sale of fixed assets (Investing Activities) and cash paid of fixed assets (Investing Activities) and cash paid to or received from creditors and owners to or received from creditors and owners (Financing Activities).(Financing Activities).

The statement of cash flow is shown on page 220.The statement of cash flow is shown on page 220.

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Statement of Retained Earnings, p. 208Statement of Retained Earnings, p. 208

The statement of retained earnings shows The statement of retained earnings shows beginning and ending retained earnings beginning and ending retained earnings amounts, adjustments made to retained amounts, adjustments made to retained earnings within the report period, and the detail earnings within the report period, and the detail for all Equity-gets closed accounts. The for all Equity-gets closed accounts. The retained earnings balance is the cumulative, retained earnings balance is the cumulative, lifetime earnings of the company less its lifetime earnings of the company less its cumulative losses and dividends.cumulative losses and dividends.

The Statement of Retained Earnings is shown The Statement of Retained Earnings is shown on page 221.on page 221.

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Statement of Changes in Financial Statement of Changes in Financial Position, p. 208Position, p. 208

Changes in a company’s financial position that Changes in a company’s financial position that may not be obvious from other financial may not be obvious from other financial statements is shown in this report. The statements is shown in this report. The Statement of Changes in Financial Position is Statement of Changes in Financial Position is shown on page 222.shown on page 222.

Statement of Changes in Financial Position

Sage 50 includes the Statement of Changes in Financial Position even though current accounting standards require that a statement of cash flows is needed as part of a full set of financial statements in place of a statement of changes in financial position.

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Interrelationship of Financial Statements, Interrelationship of Financial Statements, p. 208-209p. 208-209

No single financial statement tells the entire story. No single financial statement tells the entire story. The income statement indicates how much The income statement indicates how much revenue a business has earned during a specific revenue a business has earned during a specific period of time, but it says nothing about how period of time, but it says nothing about how much of that amount has or has not been much of that amount has or has not been received in cash. For information about cash and received in cash. For information about cash and accounts receivable, you have to look at the accounts receivable, you have to look at the balance sheet, statement of cash flow, and balance sheet, statement of cash flow, and statement of changes in financial position.statement of changes in financial position.

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Sage 50 TipSage 50 Tip

Since the Exercise 6-2 backup (textbook page 202) Since the Exercise 6-2 backup (textbook page 202) includes all the data necessary for the financial includes all the data necessary for the financial statements, there is no need to back up in Chapter 7.statements, there is no need to back up in Chapter 7.

Do Do notnot delete the Exercise 6-2.ptb file. It is used for delete the Exercise 6-2.ptb file. It is used for activities in Chapters 16-18 (Part 4).activities in Chapters 16-18 (Part 4).

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Backing Up Chapter 7Backing Up Chapter 7Backup NameBackup Name

Excel (.xlsx) and Adobe (.pdf) Excel (.xlsx) and Adobe (.pdf)

KBKB Page No.Page No.

Chapter 7.ptb Chapter 7.ptb (optional)(optional) 3,860 KB3,860 KB 223223

Chapter 7_Financial Statements.xlsxChapter 7_Financial Statements.xlsx 37 KB37 KB 223-225223-225

Chapter 7_Balance Sheet.pdfChapter 7_Balance Sheet.pdf 8 KB8 KB 225225

Chapter 7_Income Statement.pdfChapter 7_Income Statement.pdf 9 KB9 KB 225225

Chapter 7_Dept Gross Profit Total.pdfChapter 7_Dept Gross Profit Total.pdf 10 KB10 KB 225225

Chapter 7_Statement of Cash Flow.pdfChapter 7_Statement of Cash Flow.pdf 6 KB6 KB 225225

Chapter 7_Statement of Retained Earnings.pdfChapter 7_Statement of Retained Earnings.pdf 4 KB4 KB 225225

Chapter 7_Statement of Changes in Financial Chapter 7_Statement of Changes in Financial Position.pdfPosition.pdf

6 KB6 KB 225225

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Glossary of Terms Glossary of Terms Chapter 7Chapter 7

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Net Income, p. 207Net Income, p. 207

A net income results when revenues A net income results when revenues exceed expenses.exceed expenses.

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Net loss, p. 207Net loss, p. 207

A net loss results when expenses exceed A net loss results when expenses exceed revenues.revenues.

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Masking, p. 215Masking, p. 215

A feature included in Sage 50 called A feature included in Sage 50 called masking allows you to departmentalize masking allows you to departmentalize financial statements. Masking is the ability financial statements. Masking is the ability to limit information on the report to a single to limit information on the report to a single division, department, location, or type division, department, location, or type code. code.

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Online Learning CenterOnline Learning Center Go online to Go online to http://www.mhhe.com/yacht2013 for for

additional resources. Link to additional resources. Link to Student EditionStudent Edition, select , select Chapter 7.Chapter 7.

o Interactive TestingInteractive Testing Appendix A: TroubleshootingAppendix A: Troubleshootingo Glossary of TermsGlossary of Terms Appendix B: AIS Appendix B: AIS o Feature QuizzesFeature Quizzes Appendix C: Review of Appendix C: Review of

AccountingAccountingo Narrated PowerPointsNarrated PowerPointsAppendix D: GlossaryAppendix D: Glossaryo Assessment RubricsAssessment Rubricso Going to the NetGoing to the Neto QA Templates QA Templates

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Going to the NetGoing to the NetAccess the article How to Value Stocks: How to Access the article How to Value Stocks: How to Read a Balance Sheet atRead a Balance Sheet at

http://www.fool.com/investing/beginning/how-to-value-stocks-how-to-read-a-balance-sheet.aspx

Read the article. Answer the following questions.Read the article. Answer the following questions.What are liquid assets? What are liquid assets? What are the liquid assets called on the balance What are the liquid assets called on the balance sheet?sheet?In the More on reading a balance sheet section, In the More on reading a balance sheet section, link to two other sites. Define each link; include link to two other sites. Define each link; include the website addresses in your answer.the website addresses in your answer.

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Analysis QuestionsAnalysis Questions

1.1. How are the income statement and How are the income statement and balance sheet related to each other?balance sheet related to each other?

2.2. Using Bellwether as an example, what Using Bellwether as an example, what cash accounts does the statement of cash accounts does the statement of cash flow report?cash flow report?

3.3. Does the statement of cash flow use Does the statement of cash flow use information from both the balance sheet information from both the balance sheet and income statement?and income statement?

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Assessment RubricAssessment Rubric

Report Date

Menu Window

Balance Sheet

Income Statement

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