These costs will precede the selling of goods and services. In reality, businesses must invest cash to prepare the store, train employees, and obtain the equipment and inventory necessary to open. Second, we are ignoring the timing of certain cash flows such as hiring, purchases, and other startup costs. This process is explained starting in Analyzing and Recording Transactions. We did not explain how the amounts would be derived. First, the amounts in the accounting records were given. We should note that we are oversimplifying some of the things in this example. (attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license)
STATEMENT OF CASH FLOWS SAMPLE PROBLEMS TRIAL
This table is a variation of what accountants call a “trial balance.” A trial balance is a summary of accounts and aids accountants in creating financial statements. Accountants record and summarize accounting information into accounts, which help to track, summarize, and prepare accounting information. Figure 2.6 shows the financial information (as of June 30) for Cheesy Chuck’s.įigure 2.6 Trial Balance for Cheesy Chuck’s Classic Corn. The former employee has done a nice job of keeping track of the accounting records, so you can focus on your first task of creating the June financial statements, which Chuck is eager to see. The owner, Chuck, heard that you are studying accounting and could really use the help, because he spends most of his time developing new popcorn flavors. In addition to your duties involving making and selling popcorn at Cheesy Chuck’s, part of your responsibility will be doing the accounting for the business. It is an exciting time because the store opened in the current month, June.Īssume that as part of your summer job with Cheesy Chuck’s, the owner-you guessed it, Chuck-has asked you to take over for a former employee who graduated college and will be taking an accounting job in New York City. This company is a small retail store that makes and sells a variety of gourmet popcorn treats. Let’s use as an example a fictitious company named Cheesy Chuck’s Classic Corn. We have all of the ingredients (elements of the financial statements) ready, so let’s now return to the financial statements themselves.
Now it is time to bake the cake (i.e., prepare the financial statements). While further discussion of comprehensive income is reserved for intermediate and advanced studies in accounting, it is worth noting that comprehensive income has four components, focusing on activities related to foreign currency, derivatives, investments, and pensions.įinancial Statements for a Sample Company Comprehensive income-defined as the “change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources” (SFAC No.Distribution to owners-cash, other assets, or ownership interest (equity) provided to owners.Investment by owners-cash or other assets provided to the organization in exchange for an ownership interest.
Equity-the net worth (or net assets) of the organization.Liabilities-amounts the organization owes to others (also called creditors).Assets-items the organization owns, controls, or has a claim to.Losses-losses are similar to expenses but related to “incidental or peripheral” activities of the organization.Gains-gains are similar to revenue but relate to “incidental or peripheral” activities of the organization.Expenses-costs of providing the goods or services for which the organization earns revenue.Revenue-value of goods and services the organization sold or provided.There are ten elements of the financial statements, and we have already discussed most of them. To help accountants prepare and users better understand financial statements, the profession has outlined what is referred to as elements of the financial statements, which are those categories or accounts that accountants use to record transactions and prepare financial statements. 7, 2013, while underway in the Solomon Sea 130807-N-NN332-044” by MC3 Jarred Harral/Wikimedia Commons, Public Domain credit (b): modification of “Easter Cake with Colorful Topping” by Kaboompics. Navy Culinary Specialist Seaman Robert Fritschie mixes cake batter aboard the amphibious command ship USS Blue Ridge (LCC 19) Aug. In a similar manner, the study of accounting requires an understanding of how the accounting elements relate to the final product-the financial statements. If used correctly, the final product will be beautiful and, more importantly, delicious, like the cake shown in (b). Figure 2.5 Baking requires an understanding of the different ingredients, how the ingredients are used, and how the ingredients will impact the final product (a).
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