Chapter 7: Chapter 7: Financial StatementsFinancial Statements

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Financial StatementsFinancial StatementsIn Chapter 7, you learn about Peachtree’s financial In Chapter 7, you learn about Peachtree’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 Peachtree. calculated by Peachtree. 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 PCA’s graphical user interface works and how to PCA’s graphical user interface works and how to navigate the software. You also journalized and posted navigate the software. You also journalized and posted various types of transactions. various types 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 from scratch. features to set up service businesses from scratch. Then, in Chapter 11, you will set up merchandising Then, in Chapter 11, you will set up merchandising businesses from scratch. businesses from scratch. In the textbook, you set up 11 businesses which include In the textbook, you set up 11 businesses which include service, merchandising, nonprofit, and manufacturing service, merchandising, nonprofit, and manufacturing businesses.businesses.

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Software Objectives, p. 205Software Objectives, p. 205

Restore data from Exercise 6-2. This Restore data from Exercise 6-2. This back up was made on page 203.back up was made on page 203.

Explore Peachtree’s Help feature.Explore Peachtree’s Help feature.

Print the financial statements.Print the financial statements.

Make an optional backup of Chapter 7. Make an optional backup of Chapter 7. The backups that were made in The backups that were made in Chapter 6 include the data for this Chapter 6 include the data for this chapter.chapter.

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Web Objectives, p. 205Web Objectives, p. 205

Use your Internet browser to go to the book’s Use your Internet browser to go to the book’s web site at web site at www.mhhe.com/yacht2004www.mhhe.com/yacht2004

Complete the Internet activity for Peachtree Complete the Internet activity for Peachtree Software.Software.

Complete the steps shown for this activity.Complete the steps shown for this activity.

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Financial Statements, pp. 205-206Financial Statements, pp. 205-206

In this chapter, you learn about PCA’s In this chapter, you learn about PCA’s financial statements. Once journal entries financial statements. Once journal entries have been recorded and posted, Peachtree have been recorded and posted, Peachtree automatically calculates financial statements.automatically calculates financial statements.

Since business managers and owners have Since business managers and owners have the primary responsibility for the the primary responsibility for the organization, they depend on accounting organization, they depend on accounting information in the form of financial information in the form of financial statements to understand what is happening.statements to understand what is happening.

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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.

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Gross Profit by Departments, p. 206Gross Profit by Departments, p. 206

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

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

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

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

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

The cash flow from operations is roughly the same The cash flow from operations is roughly the same as income from operations plus depreciation, as income from operations plus depreciation, depletion, and adjusted for any other operating depletion, and adjusted for any other operating transactions that had no effect on cash during the transactions that had no effect on cash during the period. period.

The statement of cash flow also reports cash The statement of cash flow also 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 (Financial to or received from creditors and owners (Financial Activities).Activities).

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Statement of Retained Earnings, p. 207Statement of Retained Earnings, p. 207

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

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

The statement of changes describes The statement of changes describes changes in a company’s financial changes in a company’s financial position that may not be obvious from position that may not be obvious from other financial statements.other financial statements.

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

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

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Peachtree TipPeachtree Tip

Since you backed up all the data necessary for the Since you backed up all the data necessary for the financial statements in Chapter 6, there is no need financial statements in Chapter 6, there is no need to back up again in Chapter 7.to back up again in Chapter 7.

The Exercise 6-2 back up should be saved for use The Exercise 6-2 back up should be saved for use with Chapters 15, 17, and 18.with Chapters 15, 17, and 18.

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Backing Up Chapter 7*Backing Up Chapter 7*Backup NameBackup Name

KBKB Page No.Page No.

A:\Chapter 7A:\Chapter 7 1,251 KB 1,251 KB 203203

*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 203.

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Chapter 7 TopicsChapter 7 Topics1.1. Software & web objectives, p. 205Software & web objectives, p. 2052.2. Financial Statements, pp. 205-206Financial Statements, pp. 205-206

a. Balance Sheet, p. 206a. Balance Sheet, p. 206b. Gross Profit by Department, p. 207b. Gross Profit by Department, p. 207c. c. Income Statement, p. 207Income Statement, p. 207d. d. Statement of Cash Flow, p. 207Statement of Cash Flow, p. 207e.e. Statement of Retained Earnings, pp. Statement of Retained Earnings, pp. 207-207- 208208f. Statement of Changes in Financial Position, f. Statement of Changes in Financial Position,

p. 209p. 209g. Interrelationship of Financial Statements, g. Interrelationship of Financial Statements,

p. 208p. 208

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Chapter 7 TopicsChapter 7 Topics4.4. Getting Started, pp. 209-210Getting Started, pp. 209-2105.5. Using Peachtree’s Help Feature, pp. 210-212Using Peachtree’s Help Feature, pp. 210-2126.6. Printing the Financial Statements, pp. 213-221Printing the Financial Statements, pp. 213-2217.7. Backing up Chapter 7 data (Optional Backup), pp. 221-Backing up Chapter 7 data (Optional Backup), pp. 221-

2222228.8. Internet activity, p. 222Internet activity, p. 2228.8. Summary and Review, pp. 222-223Summary and Review, pp. 222-223

a.a. Going to the net, p. 223Going to the net, p. 223b. True/make true questions, pp. 223-225b. True/make true questions, pp. 223-225c. Exercise 7-1, p. 226c. Exercise 7-1, p. 226d. Exercise 7-2, p. 226d. Exercise 7-2, p. 226

e. Chapter 7 index, p. 227e. Chapter 7 index, p. 227

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Peachtree Help window, pp. 210Peachtree Help window, pp. 210Click on Help, Contents and Index. If Click on Help, Contents and Index. If necessary, click on the Index tab.necessary, click on the Index tab.

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Peachtree Help (continued), p. 211Peachtree Help (continued), p. 211

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Peachtree Help (concluded), p. 212Peachtree Help (concluded), p. 212

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Printing Financial Statements, p. 213Printing Financial Statements, p. 213

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Gross Profit by Departments, pp. 215-216Gross Profit by Departments, pp. 215-216

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<Standard> Income Statement, p. 217<Standard> Income Statement, p. 217

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Statement of Cash Flow, p. 219Statement of Cash Flow, p. 219

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Statement of Retained Earnings and Statement of Retained Earnings and Statement of Changes in Financial Statement of Changes in Financial Position, pp. 220-222Position, pp. 220-222

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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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Internet Activity, p. 222Internet Activity, p. 222

11 Go to the book’s web site at Go to the book’s web site at www.mhhe.com/yacht2004www.mhhe.com/yacht2004

22 In the Student Center list, link to Internet Activities.In the Student Center list, link to Internet Activities.

33 Link to WEB EXERCISES PART 1Link to WEB EXERCISES PART 1..

44 Scroll down the screen to PEACHTREE SOFTWARE – Scroll down the screen to PEACHTREE SOFTWARE – Chapter 7 Read steps 1 and 2.Chapter 7 Read steps 1 and 2.

55 Follow the steps shown on the books web site to complete the Follow the steps shown on the books web site to complete the Internet activity.Internet activity.

66 Use a word processing program to write a summary for each Use a word processing program to write a summary for each web site visited. Your summaries should be no more than 75 web site visited. Your summaries should be no more than 75 words.words.

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Going to the Net, p. 223Going to the Net, p. 223

Access the article How to Read a Balance Access the article How to Read a Balance Sheet: Introduction at Sheet: Introduction at www.fool.com/school/valuation/howtoreadabalancesheet.htmwww.fool.com/school/valuation/howtoreadabalancesheet.htm

1.1. What are liquid assets?What are liquid assets?

2.2. What are the liquid assets called on the balance What are the liquid assets called on the balance sheet?sheet?

3.3. In the How to Read a Balance Sheet: In the How to Read a Balance Sheet: Introduction list, link to two other sites. Define Introduction list, link to two other sites. Define each link; include the website addresses in your each link; include the website addresses in your answer.answer.