The Balance Sheet

and the Profit and Loss Account

PREPARED BY
MR. JUN ALEJO BATHAN, MEM
Jun Alejo Bathan, MEM
 Balance Sheet
2

 Reports assets and claims to assets.

 Claims of creditors, liabilities.
 Claims of owners, stockholders’ equity.
 Assets = Liabilities + Stockholders’ Equity
 Specific date – one point in time!
Balance Sheet
3

From
Retained
Earnings
Statement
 Income Statement
4

 Reports operating success or failure for a

period.
 Summarizes revenues and expenses for
period: month, quarter, year.
 If revenue > expense = Net Income.
Income Statement
5
 Assets

 Resources owned by the

business
 Cash

 Accounts receivable

 Inventories

 Furniture and fixtures

 Equipment

 Supplies

6
 Liabilities
7

Obligations or debts of business

 Notes payable
 Accounts payable
 Interest payable
 Salaries payable
 Unearned revenue
 Stockholders’ Equity
8

Ownership claims on assets

 Paid-in capital
 Common stock
 Retained earnings
 Basic Accounting Equation
9

Assets = Liabilities + Stockholders’ Equity

 Review
10

Which of the following is not a correct

representation of the accounting equation?

a. Assets = Liabilities + Stockholders’ Equity

b. Assets - Liabilities = Stockholders’ Equity
c. Assets + Stockholders’ Equity = Liabilities
d. Assets - Stockholders’ Equity = Liabilities
 Review
11

Which of the following is not a correct

representation of the accounting equation?

a. Assets = Liabilities + Stockholders’ Equity

b. Assets - Liabilities = Stockholders’ Equity
c. Assets + Stockholders’ Equity = Liabilities
d. Assets - Stockholders’ Equity = Liabilities
 Review
12

Using the accounting equation, answer the

following question.
If Liabilities = $10,000 and

Stockholders’ Equity = $20,000

Then Assets = $30,000

$30,000 = $10,000 + $20,000

 Review
13

Using the accounting equation, answer the

following question.

If Assets = $75,000
And Liabilities = $35,000
Then Stockholders’ Equity = $40,000

$75,000 = $35,000 + $40,000

Supplements to the Financial Statements
in an Annual Report
14

Management Discussion and Analysis

Notes to Financial Statements

Auditor’s report
Management’s Discussion and Analysis covers
three items:
15

1. Liquidity
2. Capital resources
3. Results of operations
Management’s Discussion and Analysis
16
 Notes to Financial Statements
17

Explanatory notes and supplementary schedules

Clarifies information in financial statements
Expands with additional detail
Describes accounting policies
Explains uncertainties and contingencies
Notes to Financial Statements
18
 Auditor’s Report
19

Certified Public Accountant – CPA

Auditor (CPA) conducts independent examination of
financial statements
Fair representation?
Follow generally accepted accounting principles
(GAAP)?
Unqualified opinion
Auditor’s Report
20
 Do It Problem: CSU Corporation
21

Service revenue $17,000

 CSU begins on
Accounts receivable $4,000 Jan. 1, 2007
Accounts payable $2,000
Building rental expense $9,000  For year ended
Notes payable
Common stock
$5,000
$10,000
Dec. 31, 2007,
Retained earnings ? prepare
Equipment $16,000
Insurance expense $1,000
 Income
Supplies $1,800 statement
Supplies expense $200  Retained
Cash $1,400
Dividends $600
earnings
statement
 Balance sheet
 Do It Problem: CSU Corporation
22

Service revenue
Accounts receivable
$17,000
$4,000
 Action step 1:
Accounts payable $2,000 Report the
Building rental expense
Notes payable
$9,000
$5,000
revenues &
Common stock $10,000 expenses for a
Retained earnings
Equipment
?
$16,000
period of time,
Insurance expense $1,000 Income
Supplies
Supplies expense
$1,800
$200
Statement
Cash $1,400
Dividends $600
 Do It Problem: CSU Corporation
23

Service revenue
Accounts receivable
$17,000
$4,000
 Action step 1:
Accounts payable $2,000 Report the
Building rental expense $9,000 revenues &
Notes payable $5,000
Common stock $10,000 expenses for a
Retained earnings ? period of time,
Equipment $16,000
Insurance expense $1,000 Income
Supplies $1,800 Statement
Supplies expense $200
Cash $1,400
Dividends $600
 Do It Problem: CSU Corporation
24

Create the heading

Name of the
company CSU Corporation Name of the
Income Statement statement
For the Year Ended December 31, 2007
Period
of time
 Do It Problem: CSU Corporation
25

CSU Corporation
Income Statement
For the Year Ended December 31, 2007
Revenues
Service revenue $17,000

List the revenues

Use dollar signs to denote U.S. currency
 Do It Problem: CSU Corporation

CSU Corporation
Income Statement
For the Year Ended December 31, 2007
Revenues
Service revenue $17,000
Expenses
Rent expense $9,000
Insurance expense 1,000
Supplies expense 200
________
Total expenses 10,200

List the expenses & underline sub-totals

 Do It Problem: CSU Corporation

CSU Corporation
Income Statement
For the Year Ended December 31, 2007
Revenues
Service revenue $17,000
Expenses
Rent expense $9,000
Insurance expense 1,000
________
Supplies expense 200 ________
Total expenses 10,200
________
________
Net Income $ 6,800
Calculate net income: revenues - expenses
 Do It Problem: CSU Corporation
28

Service revenue
Accounts receivable
$17,000
$4,000
 Action step 2:
Accounts payable $2,000 Show amounts
Building rental expense
Notes payable
$9,000
$5,000
and causes of
Common stock $10,000 changes in
Retained earnings
Equipment
?
$16,000
retained
Insurance expense $1,000 earnings
Supplies $1,800
Supplies expense $200
 Use Net Income
Cash $1,400 from Income
Dividends $600
Statement
 Dividends