(1) Consolidated Statement of Income Operating Revenues Revenue from services Sales revenue Less: Credit Card Discount

Less: Sales Discount Less: Sales Returns & Allowances Total revenues Operating Expenses Cost of goods sold Salaries expense Rent expense Advertising expense General and administrative expenses Depreciation expense Other operating expenses Total expenses Operating Income Other Items Investment income Interest expense Loss on PPE sold Income before Income Taxes Income tax expense Net Income Earnings per Share (2) Consolidated Statement of SE Contributed Retained Total Capital Earnings SE Beginning, $0 $0 $0 date Additional X X contributions Net Income Dividends declared Ending, date X Y (Z) Y (Z)

(3) Consolidated Balance Sheet ASSETS Current Assets Cash and cash equivalents Short-term investments Inventories Supplies Accounts receivable Less: Allowance for doubtful account Short-term notes receivable Prepaid expenses Total current assets Properties, plants & equipment Less: Accumulated depreciation Goodwill Long-term investments Long-term notes receivable Intangibles Non-current deferred income taxes Total assets LIABILITIES AND SHAREHOLDERS EQUITY Current Liabilities: Accounts payable Dividends payable Accrued expenses payable Unearned revenue Short-term notes payable Total current liabilities Non-current liabilities Deferred lease credits Deferred taxes Non-current accrued income taxes Long-term notes payable Total non-current liabilities Total liabilities Shareholders equity Contributed capital Preferred stock Common stock Treasury stock Retained earnings Total shareholders equity Total liabilities and shareholders equity

(4) Consolidated Statement of Cash Flows Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by Operating Activities: Depreciation and amortization (expense) (+) Changes in assets and liabilities: (Decrease) Accounts receivable (Decrease) Inventory (Decrease) Prepaid expense (Decrease) Gains (Increase) Accounts payable (Increase) Accrued expenses (Increase) Losses Interest expense (-) Deduct if theres an increase in Assets Add if theres an increase in Liabilites Net cash provided (used) by operating activities Cash flows for investing activities: Purchase of PPE Proceeds from disposal of PPE Purchase of short-term investments Proceeds from short-term investments Sale of marketable securities Net cash provided (used) by investing activities Cash flows from financing activities: Borrowings under line of credit Payment on long-term debt Payment of dividends Purchase of treasury stock Proceeds from issuance of stock Net cash provided (used) by financing activities Net change in cash & cash equivalents: Cash & cash equivalents at beginning of period Cash & cash equivalents at end of period Indirect Method: Net Income Add: Depreciation Expense Decrease in Accounts Receivables Decrease in Inventories Increase in Accounts Payable Increase in Accrued Expenses Payable Non-operating Losses Net Cash provided (used) by Operating Activities Direct Method: Cash receipts from customers Cash payments to suppliers Cash payments for salary

Definitions The Balance Sheet is a statement of financial position that reports dollar amounts assets, liabilities, and SE at a specific point in time The Income Statement is a statement of operations that reports revenues, expenses, and net income for a stated period of time. Statement of Retained Earnings explains changes to the retained earnings balance that occurred during the reporting period. The Statement of Cash Flows reports inflows and outflows of cash for a stated period of time. A Trial Balance is a list of ALL accounts with their balances to check on the equality of debits and credits Revenue Principle states that revenues are recognized when 1) delivery has occurred; 2) There is persuasive evidence of an arrangement for customer payment; 3) The price is fixed or determinable; 4) Collection is reasonably assured. The Matching Principle requires that expenses be recorded when incurred in earning revenue. Managers Choice of Inventory Methods 1) Net income effects (managers prefer to report higher earnings for the companies). 2) Income tax effects (managers prefer to pay the least amount of taxes allowed by law as late as possible the least-latest rule). LIFO Conformity Rule: If LIFO is used on the income tax return, it must also be used to calculate inventory and cost of goods sold for the financial statements. When unit costs are rising, LIFO produces lower income and a lower inventory valuation than FIFO. First-In, First-Out assumes that the earliest purchased goods are sold first. Last-In, First-Out assumes that the most recently purchased units are sold first. Average Cost method uses the weighted average unit cost of the goods available for sale for both cost of goods sold and ending inventory. Profitability is a primary measure of overall success of a company. Several tests of profitability focus on measuring the adequacy of income by comparing it to other items reported on the financial statements. Liquidity refers to a companys ability to meet its maturing debts. Tests of liquidity focus on the relationship of current assets and current liabilities. Solvency refers to a companys ability to meet its long-term obligations. Tests of solvency are measures of a companys ability to meet these obligations. Market Tests relate the current price per share of stock to the return that accrues to investors. Stockholders can: (1) Vote in stockholders meeting on major issues w.r.t. management; (2) Participate proportionately in distribution of profits; (3) Share proportionately in the distribution of assets upon liquidation

Allowance for Doubtful Accounts | Beginning balance Write-offs | Bad debt expense | Ending balance Accounts Receivable Beginning balance | Write-offs Net Sales | Cash collections Ending balance |

Determine Bad Debt Expense 1) Use Aging Method to compute Allowance for Bad Debts, 2) Difference between and Beginning Balance of Allowance for Bad Debts is Bad Debt Expense 3) Net AR is AR less Allowance for Bad Debt

Cash payments for Other Expenses