Summerfuel Finance

Class 3: 7-11-2016

Class RulesOne More Time !

Respect Everyone !

Me

Your Classmates

Some people here are actually trying to learn this stuff

Yourself – you should too

Stay Focused on Class while in Class

No Social Media – pc etc’s for the right reasons

Act with some Decorum

Appropriate, Maturity

Balance Sheet

P 3

3

Income Statement

P 3 4

The Accounting Equation

Land

Equipment

Buildings

Cash

Notes

Receivable

Supplies

Prepaid

Accounts

Accounts

Receivable

Asset

Accounts

Asset Accounts

C 2 6

Accrued

Liabilities

Unearned

Revenue

Notes

Payable

Accounts

Payable

Liability

Accounts

Liability Accounts

C 2 7

Equity

Accounts

Revenues

Owner’s

CapitalOwner’s

Withdrawals

Expenses

Equity Accounts

C 2 8

A Business Transaction

Any event that has a monetary impact on the

business

Gets into the company's accounting system and on

the company’s financial statements

Debits ALWAYS equal Credits

Debits and CreditsA T-account represents a ledger account and is a tool used

to understand the effects of one or more transactions.

C 4 10

Liabilities EquityAssets = +

Double-Entry Accounting

C 4 11

Double-Entry Accounting

C 4

Here is the expanded accounting equation

showing the equity section.

12

Increases to Asset Accounts

Are Posted as Debits !

13

And That’s Normal ? The balance

expected on Fin

statements

If it’s abnormal

something is wrong

Credit cash balance

. Bank overdrawn

14

Lets Try Some

Bea’s Best Bubblegum Company

Bea’s Bubble Gum Chart of Accounts

Balance Sheet Income Statement

Normal Debit Normal Credit Normal Debit Normal Credit

Assets Liabilities

Cash Accounts Payable

Accounts

Receivable Notes Payable

Supplies

Bubble Gum

Machine

Equity

O/E Bea

O/E - Pablo Expense Sales

Retained

Earnings

Miscellaneous

Expense Sales

Interest Expense

Tax Expense

Cost of Goods Sold

What’s the Accounting Entry

Bea invested $25,000 that her grandma gave her into

her new business: “

Bea’s Best Bubblegum”

17

Bea invested $25,000 that her

grandma gave her into her new

business

Debit Credit

7/7 Cash $25,000

7/7 Owners Equity Bea $25,000

What’s the Accounting Entry

Bea took a 10 year loan from the 1st Bank of Aboud for

$10,000 at 2% to purchase the world’s best

bubblegum making machine.

Bea took a 10 year loan from the 1st Bank

of Aboud for $10,000 at 2% to purchase

the world’s best bubblegum making

machine.

Debit Credit

7/7 Bubble Gum Machine $10,000

7/7 Notes Payable BG Machine $10,000

Do an Accounting Entry Bea made her 1st Sale !

She sold $6,000 of her gum to “ the Dentist’s Pleasure

Candy Store ( DPCS) . DPCS was invoiced but has not

yet paid cash

21

She sold $6,000 of her gum to “ the Dentist’s

Pleasure Candy Store ( DPCS) . DPCS was

invoiced but has not yet paid cash

Debit Credit

7/7 Accounts Receivable $6,000

7/7 Sales $6,000

Do a Accounting Entry Bea bought the supplies to create her best Bubblegum

: $5,000 on credit from her supplier

23

Bea bought the supplies to create her best

Bubblegum : $5,000 on credit from her

supplier

Debit Credit

7/7 Supplies $5,000

Accounts Payable $5,000

Accounts Receivable / Accounts Payable

An asset account .Accounts receivable (AR) refers to

money owed by customers for goods or services that

have been delivered or used, but not yet paid for.

A liability account will show the amount a company

owes for items or services purchased on credit .

One company’s accounts receivable is another

company's account payable.

Do an Accounting Entry

Bea paid all of her Miscellaneous Expenses for the

period of $100 with Cash

26

Bea paid all of her Miscellaneous Expenses for

the period of $100 with Cash

Debit Credit

7/7 Miscellaneous Expenses $100

7/7 Cash $100

Do an Accounting Entry

Pablo bought in on Bea’s company with $5,000 in

cash

Pablo bought in on Bea’s company with

$5,000 in cash

Debit Credit

7/11 Interest Expense $200

Cash $200

$10,000*.02 = $200

Do a Accounting Entry

Bea paid 1 year's interest to the Bank of Aboud

Bea paid 1 year's interest to the Bank

of Aboud

Debit Credit

7/7 Cash $25,000

Owners Equity Bea $25,000

Now Use the Entries to Build:

1. Income Statement

Bea’s tax rate is 20%

2. Balance Sheet

32

Cost of Goods Sold

How much of Bea’s supplies were used

for the gum that she sold

Debit Credit

7/11 Cost of Goods Sold $3,000

Supplies $3,000

We checked the store room and she used $3,000

Tax Debit Credit

7/7 Tax Expense $540

Cash $540

$2,700 * .20 = $540

Bea’s Income StatementSales 6000

less Cost of Goods Sold- Supplies -3000

Profit Margin 3000

less Miscellaneous Expense -100

Earnings Before Interest & Taxes 2900

Interest Expense -200

Earnings Before Taxes 2700

Taxes -540

Net Income 2160

Bea’s Ending Balance Sheet

Assets $ Liabilities $

Cash 29,160

Accounts

Payable 5,000

Accounts

Receivable 6,000Notes Payable 10,000

Supplies 2,000 Equity

Bubble Gum

Machine 10,000O/E Bea 25,000

O/E - Pablo 5,000

Retained

Earnings 2,160

Toatl Assets 47,160Total L + OE 47,160

The Capitalists

One company’s right side of the balance sheet

liabilities and equity

Is another's company's left side of the balance

sheet

assets

Assets ( stuff you have to run the business)

= Liabilities + Equity (how its paid for)

Wow !

Debt

A loan in a number of different ways to a

company

The loaned amount will repaid at some

defined time

An interest rate will be assessed as the cost

for the use of the money

No ownership stake

But senior to equity stake

Equity

Ownership (equity) in a corporation

Dividends paid or not

Residual claim

Riskier than debt from investors’perspective

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product

or service or otherwise on a password-protected website for classroom use.

Risk

The greater the risk, the

greater the potential reward.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product

or service or otherwise on a password-protected website for classroom use.

Sources of Risk

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product

or service or otherwise on a password-protected website for classroom use.

A Look at Google Finance https://www.google.com/finance

Sign up for Stock Report Day

Mon – Thurs

3 reports over the length course

We will all do it together tomorrow.

Shark Tank http://abc.go.com/shows/shark-tank/episode-guide/season-07/10-week-10-leaux-

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