Balance Sheet (Assets = Liabilities + Stockholders’ Equity)
Liabilities / Current Income Statement
Assets / Current
Revenues
Accounts Payable
Cash
Short-term investments Short Notes Payable Sales/Service
Interest
Dividends Payable
Accounts/notes
Rent
Taxes
Payable
receivable
Fees
Accrued Expenses
Inventory (to be sold)
Expenses
Unearned Revenue
Supplies
Cost of Goods Sold
Long-Term
Prepaid expenses
Long Notes Payable Wages
(insurance, rent)
Rent
Bonds
Long-Term
Interest
Long-term investments Mortgage payable
Depreciation
SE
Equipment
Insurance
Common
Stock
Buildings
Income Tax Expense
Additional Paid-In
Land
Capital
Intangibles
Retained Earnings
Accu. Depreciation
Treasury Stock
Other Assets
*net equipment is less deprecation exp. = net equipment
*BV of asset is original cost – accm. depreciation
*BV = Assets – Liabilities = Equity
*Market Value = number of shares X market share price
*Depr. Exp. = (Asset cost – salvage value) / Useful life
Title: as of closing date
Assets
Sum of
item/Total
Current
Assets
Long-term
assets
Total Assets
Total Assets
Liabilities
Sum of
item/Total
Current
Liabilities
Long-term
Liabilities
Total Liabilities
SE
Common Stock
Retained
Earnings
Total SE
Total Liabilities
+ SE
Debits & Credits (DEALER)
Every transaction must involve a debit and credit entry
*Accm. Depreciation is asset account with a normal credit
balance
*Expenses and revenues are under SE
Journal Entries
Debit
Acct. (+/–A/L/SE/R/E) .............
Acct. (+/–A/L/SE/R/E) ........................................
*debits = credits
Ori Chevio
Credit
Statement of Retained Earnings
RE = beg. Bal. RE + Net Income – dividends =
ending RE
Title: for the period ended closing date
Income Statement
1. Net Sales / Service Revenue
2. – Cost of Goods Sold (cost of sales/service)
3. = Gross Profit (before deduction of
business expenses)
4. – General & Admin (Operating) Expenses
5. = Income from regular operations
(Operating Income)
a. + Non-operating revenue / - N.O
expense
6. Income Before Tax
7. – Tax Expense (tax provision if any)
8. = Net Income after Tax (NIAT)
Title: for the period ended closing date
Account Title Sum of item
Total
Revenues
sum
Less cost of
goods sold
Gross Profit
sum
Operating
Item
Expenses
Item
Total expenses
sum
Operating
Gross profit Income
operating exp.
Income Tax
(sum of tax)
Expenses
Net Income
Sum
after Tax
Earnings Per
NIAT / Shares
Share
outstanding
*Dividends are not an expense
*Depr. expense is an operating expense
Adjusting Entries
1. Prepaid Expense -future expense which is paid for in
advance (dr. Prepaid Expense / cr. Cash)
2. Unearned Revenue – payments received for goods or
services not yet delivered (dr. Cash / cr. Unearned
Revenue
3. Accrued Expense – past expense which hasn’t been
recorded or paid for (dr. Accrued Expense / cr.
Payable)
4. Accrued Revenue – revenue that has been earned but
not invoiced yet (dr. A/R / cr. Revenue Account)
Closing Entries
Debit revenues à credit RE for sum of revenues
Credit expenses à debit RE for sum of expenses
Credit dividends à debit RE
Title: End date – Closing entries
Account Title
Debit
Credit
Itemized Revenues
RE
Sum of revenues
Retained Earnings
Sum of
expenses
Itemized Expenses
Dividends
Oct. 2019
NYU Stern School of Business
Statement of Cash Flows (Indirect Method)
*How cash balance at start of period à end of period
*Title: for the period ended closing date
*Start byRandom
determining
change between periods and
notes:
classify accounts on balance sheet
Net Cash Flow from Operating Activities
Net Income / (Loss) (from income statement)
Adjustments:
1. + Depreciation/Amortization/
Impairment/Stock Compensation/Other noncash expenses
2. + Loss on sale of long-term asset or
investments
3. – Gain on sale of long-term assets or
investments
4. + Decrease in current assets other than cash
5. – Increase in current assets other than cash
6. + Increase in current liability
7. – Decrease in current liability
= Net cash flow from operating activities
Net Cash Flow from Investing Activities
1. – Purchase of PPE or intangibles
2. + Sale of PPE or intangibles
3. – Purchase of investment securities
4. + Sale (maturity of investment securities)
= Net cash flow from investing activities
Net Cash Flow from Financing Activities
1. + Proceeds from short-term borrowings (notes
payable)
2. – Repayment of loan principal
3. + Proceeds from long-term borrowings (debt)
4. – Repayment of long-term debt
5. + Issuance of stock (common stock)
6. – Repurchase (retirement) of stock
7. – Payment of (cash) dividends (RE)
= Net cash flow from financing activities
Net increase/decrease in cash during the year
Cash at beginning of period
Cash at end of period
Ori Chevio
Investing Activities
Equipment
1. Acquisition of equipment: Beg. net PPE +
Equipment purchases – BV of assets sold –
Depreciation Exp. = End net PPE
2. Equipment Purchases = Depreciation Exp.
+ Change in net assets + BV of assets sold
3. Cash from sale of equipment = BV of assets
sold +/– Gain / (Loss) on sale
Investments
1. Beg. Bal. Investments + Purchases – BV
sold = End investments
2. Cash from sale of investments = BV of
assets sold +/– Gain / (Loss) on sale
Financing Activities
1. Long-Term Debt: Beg. Bal. Debt + cash
from amount borrowed – repayment of
LTD = End. Bal. Debt
2. Common Stock: Beg. Bal. C/S + Issuance of
new C/S – Retirement of C/S = Ending C/S
3. Common Stock issued for cash = Total
change in C/S – non-cash C/S issues
Treasury Stock (Negative C/S):
1. Beg. Bal. T/S+ Purchases of new T/S –
Reissues (sale) of T/S = End Bal. T/S
2. Increase in T/S = decrease in cash
3. Decrease in T/S = increase in cash
Dividends
1. Dividends paid = dividends declared –
dividends declared but not paid (during the
period)
2. Dividends declared = Net Income – change
in RE
Financial Analysis
1. Quality of Income Ratio = Cash Flow from
Operating / Net Income
2. Capital Acquisitions Ratio = Cash Flow
from Operating / Cash paid for PPE
Oct. 2019
NYU Stern School of Business