Chapter 3
T.Hend Alajaji

Balance sheet

Income statement

Statement of cash flows

Statement of retrained earning
Financial
Statement
Preparing
income
statement
Classified
income
statement
Balance
Sheet
Ch3
Transaction
Classified
Balance
Sheet
Income
Statment
Preparing
Balance
Sheet

Transaction

The types of events for transactions

Balance sheet

Classified Balance Sheet

Preparing a balance sheet

Business activities that effect the basic
accounting equation

A = L + SE
Are called  Transactions

External exchanges :
There are exchanges involving assets, liabilities and
stockholder equity that you can see between the
company and someone .

Internal exchanges :
these events do not involve exchanges with others
outside the business but rather occur within the
company itself .

Using the ending amount from each T-account
you could now prepare a balance sheet

Before do this , it’s good idea to check that the
accounting
records
determining whether
are
in
balance
debits = credit
by
Reports the amounts of assets , liabilities and
stockholders equity of a business at a point in
time .
Classified Balance Sheet :
A balance sheet that shows a subtotal for
currents assets and current liabilities .
1.
Current Assets  Cash and other assets that are expected to be
converted into cash, sold, or used up usually within a year or less,
through the normal operations of the business, are called current
assets.

Cash

Accounts Receivable

Notes Receivable  are written promises by the customer to pay the
amount of the note and possibly interest at an agreed rate.

Supplies.

Prepaid expenses .

Accrued revenues .
2-
Fixed
Assets

Property,
plant,
and
equipment (also called fixed assets or plant
assets) include assets that depreciate over a
period of time. Land is an exception, as it is not
subject to depreciation.

Equipment

Buildings

Land
3- Current Liabilities  Liabilities that will be
due within a short time (usually one year or
less) and that are to be paid out of current
assets are called current liabilities.

Accounts payable

Wages payable

Interest payable

Unearned fees
4- Long-Term Liabilities  Liabilities not due
for a long time (usually more than one year)
are called long-term liabilities.

Short-term notes payable

Mortgages payable

Bonds payable
5- Owner’s Equity  Owner’s equity is the
owner’s right to the assets of the business.
Owner’s equity is added to the total liabilities,
and this total must be equal to the total
assets.
Company Name
Balance Sheet
Date
Assets
Current Assets
Cash ………………………………………...
Accounts Receivable ……………
Notes Receivable …………………
Supplies …………………………………
Prepaid Expenses……………………
……………………Total current Assets
Fixed Assets
Land …………………………………………
Equipment ………………………………
Accum. Dep. – equipment ……
Machinery ………………………………
Accum. Dep. – machinery ……
Buildings …………………………………
Accum. Dep. – Buildings ………
Cars (automobile) …………………
Accum. Dep. – cars ………………
Total fixed assets ………………
Total assets ……………………………
Liabilities
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
Current Liabilities
Accounts payable ……………………………
Note payable ……………………………………
Wages payable …………………………………
Interest payable ………………………………
Unearned fees …………………………………
Total current Liabilities …………………
xx
xx
xx
xx
xx
Long-Term Liabilities
Short-term notes payable ……………
Mortgages payable …………………………
Bonds payable …………………………………
Loans …………………………………………………
totalLong-Term Liabilities…………
xx
xx
xx
xx
xx
xx
Owner’s Equity
Owner’s capital …………………………………
xx
Total Liabilities and Owner’s equity
xx
NetSolutions
Balance Sheet
December 31, 2011
Assets
Current Assets
Cash
2,065
Liabilities
Current Liabilities
Accounts payable
Accounts Receivable
2,720
Wages payable
250
760
Unearned rent
240
Supplies
Prepaid insurance
Total current assets
Fixed Assets
Land
Equipment
Accum. Dep. - equipment
Total fixed assets
Total assets
2,200
20,000
1,800
(50)
7,745
900
Total current Liabilities
Owner’s Equity
Chris clark, capital
21,750
29,49 Total Liabilities
5
Owner’s equity
and
1,390
28,105
29,49
5

complete the following table .

Indicate whether the account is classified as
Current assets , noncurrent assets , current
liabilities , noncurrent liabilities , or stockholder
equity and whether the account usually has a
debt or credit balance .
Account
Land
Retained Earning
Notes payable (due in three
years )
Accounts Receivable
Supplies
Equipment
Accounts Payable
Cash
Taxes payable
Balance sheet
Classification
Debit or Credit
Balance
EXERCISE 2 :
complete the following table
Balance Sheet
December 31, 2011
Assets
Current Assets
Cash
1000
Liabilities
Current Liabilities
Accounts payable
3000
Accounts Receivable
500
Wages payable
1500
Supplies
2500
Unearned rent
1000
Prepaid insurance
Total current assets
Fixed Assets
Land
3000
Total current Liabilities
5000
Owner’s Equity
Chris clark, capital
Equipment
Accum. Dep. - equipment
Total fixed assets
Total assets
2000
(500)
Total
Liabilities
Owner’s equity
and
8000
EXERCISE 3 :
Cash
3000
land
3000
Accounts Receivable
5000
Supplies
5000
Inventory
4000
Accounts Payable
7000
Notes receivable ( due
2013)
2000
Note payable ( due
2013)
8000
Equipment
2500
Retained Earning
Accum. Dep. – equipment
500
Loans
5000
4000

Income Statement .

The
Three
main
sections
statement.

Accounting Methods

Preparing Income Statement .
of
income

It called also the statement of operations .

It is reports the amount of revenues less expenses
for a period of time .

The income Statement summarize the financial
impact of operating actives under taken by the
company during the accounting period .

A financial statement that measures a company's
financial performance over a specific accounting
period.
1- Revenues .
Amounts earned by selling goods or services .
2- Expenses .
Costs of business necessary to earn revenues
3- Net income .
The excess of revenues over expenses
Company Name
Income Statement
For The Period Ended (Date)
Revenues ……………………………………………………………
xxx
Total Revenues …………………………………………………
Expenses ……………………………………………………………
xxx
xxx
Total expenses …………………………………………………
(xxx)
Net income (or net loss) ………………………………
xxx
Expenses+Assets=Liabilities+Capital+Revenues
Debit Accounts
Credit Accounts
If Debit, and if Credit
If Credit, and if Debit
Item
Revenues
Expenses
Increase
Decrease
1- Cash Basis Accounting :
Reports revenues when cash is received and
expenses when cash is paid .
2- Accrual Basis Accounting :
Reports revenues when they are earned and
expenses are incurred regardless of the timing
of cash receipts

The requirement under accrual basis accounting
to record expenses in the same period as the
revenues they generate not necessarily the
period in which cash is paid for them .
Expense
Revenues
Netsolutions
Income Statement
For The Year Ended December 31, 2011
Fees earned ………………………………………………………
16,840
Rent revenue ……………………………………………………
120
Total revenues ………………………………………
16,960
Expenses:
Wages expense ……………………………………
4,525
Supplies expense ……………………………………
2,040
Rent expense …………………………………………
1,600
Utilities expense ……………………………………
985
Insurance expense ………………………………
200
Depreciation expense ………………………...
50
Miscellaneous expense …………………………
455
Total expenses …………………………
Net income ………………………………………………………
9,855
7,105

Complete the following table by entering
either debts or credit in each cell :
Item
Revenues
Expenses
Increase
Decrease
EXERCISE 2 :

Complete the following :
Company Name : Alaml Company
Income Statement
For The Period Ended (December 31 2013 )
Revenues ……………………………………………………………
8000
Total Revenues …………………………………………………
Expenses ……………………………………………………………
Total expenses …………………………………………………
Net income (or net loss) ………………………………
3000
(
)
From the following
table prepare a Income statement at
December 31 2013 
Items
Passenger ticket Revenues
10000
Onboard Revenues
8000
Ship expenses
1000
Selling expenses
1500
Wage expenses
4000
Income tax Expenses
1500

BUSINESS ACTIVITIES AND CASH FLOWS

Classifying Cash Flows
The Statement of
Cash Flows focuses
attention on:
Operations
Cash received and paid
for day-to-day activities
with customers, suppliers,
and employees.
Investing
Cash paid and received
from buying and selling
long-term assets.
12-35
Financing
Cash received and paid
for exchanges with
lenders and stockholders.
Checking and
Savings
Accounts
Cash
Currency
Cash Equivalents
Highly liquid short-term investments
within three months of maturity.
12-36
Classifying Cash Flows
UNDER ARMOUR, INC
Condensed Statement of Cash flows
For the Year Ended December 31, 2008
(in millions)
Net cash provided (used) by Operating Activities
79
Net cash provided (used) by Investing Activities
(38)
Net cash provided (used) by Financing activities
21
Net change in Cash and Cash Equivalents
62
Cash and Cash Equivalents, beginning of year
40
Cash and Cash Equivalents, end of year
12-37
$
$
102
Operating Activities
Cash inflows and outflows that directly relate
to revenues and expenses reported on the
income statement.
12-38
Investing Activities
Under Armour’s 2008 Investing Activities
12-39
Financing Activities
Under Armour’s 2008 Financing Activities
12-40
E12-7 Preparing and Evaluating a Simple Statement of Cash Flows
(Indirect Method)
Required:
2. Prepare a statement of cash flows using the indirect method.
Goggle Company
Statement of Cash flows
For the Year Ended December 31, 2010
Cash Flows from Operating Activities:
Net Income
Add Depreciation
Subtract Accounts Receivable increase
Add Inventory decrease
Add Wages Payable increase
Net cash provided (used) by operating activities
$
70
35
(100)
125
40
170
Cash Flows from Investing Activities:
Equipment purchased
(60)
Net cash providedCurrent
(used) byAssets
investing activities
(60)
Current Liabilities
SubtractActivities:
from
Add to
Cash
Flows from Financing
Increase
net income. 60
Obtained long-termnet
bankincome.
loan
Net cash provided (used)
by to
financing activitiesSubtract from60
Add
Decrease
net income.
Net change in cash
Cash, Beginning of 2010
Cash, End of 2010
12-41
net income.170
$
35
205