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Financial Statements

Copyright © 2007 by WACGAAll right reserved

This material may not be used or reproducedwithout permission of the WACGA

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Framed for Financial Statements:

Beginning Balance Sheet Data

Income Statement &

Retained Earnings Data

Ending Balance Sheet Data

Statement of Cash Flows

Data

(Direct method)

The spreadsheet provides all of the data necessary to be reorganized into financial statements. The four financial statements are:

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40006600

4000

6600

1000

1000

“Current Assets” are a group of assets that will be converted to cash or used

up within one year. They are listed in order of liquidity

(how soon this will happen).The Balance Sheet shows that Total Assets

equal Total Claims (Total Liabilities and

Equity) for both beginning balances and

ending balances.

“Current Liabilities” are the sum of all claims that will be converted to cash or liquidated within one

year.

“Total Asset” is the total of Current Assets added to Non-Current Assets

“Total Liabilities and Equity” summarizes all

Current Liabilities, Long-term Debt, and Equity

Accounts.

While playing the game, beginning and ending balances will be randomly highlighted in yellow. You will click on the location on the Balance Sheet, to transfer each amount.

These are just four of the balances transferred. You will need to transfer all of them.

-2100

-2100

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The result of transferring all the balances is that all balances on the spreadsheet have been highlighted in yellow and the Balance Sheet Beginning and Ending Balances are

complete. Note that Total Assets and Total Liabilities equity each other.

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-2000

-3000

-2000

-3000 6000 “Gross Margin is the result

of subtracting Cost of Goods Sold from Revenue.

“Operating Expenses are listed together and when

subtracted from the Gross Margin results in Operating

income.

Income Taxes is subtracted from Operating Income to

generate Net Income.

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-100

-100 300

“The result of the Income Statement is Net Income. On the Retained

Earnings Statement, Net Income is added to the Beginning Balance of

Retained Earnings.

“Then Dividends Paid are subtracted to show the Ending Balance of

Retained Earnings.

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The ending balance on the Retained Earnings Statement agrees with the

ending balance of the Retained Earnings Account.

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-2000

-2000

-2000

-2000

3000

“Operating Cash flows” is the actual cash collected for Revenue or actual cash paid

for Expenses. It is not the Revenue or Expenses themselves.

“Investing Cash flows” is any cash paid or received for Fixed Assets and Long-term

investments.

“Financing Cash flows” is any cash transactions relating to Common Stock or

Long-term Debts and cash paid out as Dividends.

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By subtracting all non-cash assets from both sides of the equal sign, they are moved to the right of the equal sign and

their sign is changed.

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3000-2000

3000

-2000

-500

The difference between the direct and indirect approaches is primarily in the Operating Cashflow section. The direct approach restates the income

statement on a strictly cash basis while the indirect approach shows the difference from Net Income to Operating Cash Flow as the change in

depreciation and changes in the current asset and current liability accounts.

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The direct method uses information from the change in the cash account, while the indirect method uses information from the change in all the non-cash

account. The sub-totals for each section of the two statements are identical.

The change in Retained Earnings

had two components: Net

Income that is shown in the

Operating Cashflow section, and

Dividends paid that is shown in the

Financing Cashflow section.

Notice the reconciliation of cash at the bottom of both statements where the change in cash is added to the beginning to equal the ending cash balances .

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Proceed to the next program:

BAFS.exe

To play the

Accounting/financial statement game.

You will be asked to post all the accounting entries and produce

Financial Statements.