5/18/2014

What AreTheFinancialsDoing?

Assets

Liabilities

ShareholdersEquity

What AreTheFinancialsDoing?

Assets

Cash

Liabilities

ShareholdersEquity

NonCash

5/18/2014

Obligations

What AreTheFinancialsDoing?

Assets

Cash

Liabilities

NonCash

ShareholdersEquity

Debt
Payables
Other
Obligations

Receivables
Inventories
PP&E
Intangibles

What AreTheFinancialsDoing?

Assets

Cash

Liabilities

NonCash

Receivables
Inventories
PP&E
Intangibles

ShareholdersEquity

Debt
Payables
Other
Obligations
Contributed
Capital

Retained
Earnings

Stock Issued
Stock
Repurchased
Other

Net Income Dividends

5/18/2014

What AreTheFinancialsDoing?

Assets

Cash

Liabilities

NonCash

ShareholdersEquity

Debt
Payables
Other
Obligations

SoWhenNetIncome
Increases:
ShareholdersEquity
Increases
ButCashDoesNot
NeedToGoUp

Contributed
Capital

Retained
Earnings

Stock Issued
Stock
Repurchased
Other

Net Income Dividends

AnalyzingTransactions
Beg

Assets

Cash

Liabilities

ShareholdersEquity

Contributed
Capital

NonCash

Retained
Earnings
Net Income

End

Assets

Liabilities

- Dividends

ShareholdersEquity

5/18/2014

Recap:InterrelationshipOfTheStatements
Beg

Assets

Liabilities

ShareholdersEquity

Beg,BalanceSheet

Cash

Contributed
Capital

NonCash

Statement
OfCash
Flows

Retained
Earnings
Net Income

Changesin
Shareholder
equity

- Dividends

Income
Statement

End,BalanceSheet
End

Assets

Liabilities

ShareholdersEquity

HowDoBusinessActivitiesAffectFinancials?

ForExample:
ACompanysEmployeesEarnedSalariesOf$200But
HaveOnlyBeenPaid$150

5/18/2014

ImpactOfTransactionsOnFinancials

$150+$50
$200
(cash)(AccruedSalaries)(SalaryExp)

Statement
OfCash
Flows

Income
Statement

BalanceSheet: 150(Cash),+50(AccruedSalaries),200(Ret.Earnings)
IncomeStatement: 200(Income)DueTo200(SalaryExp)
StatementofCashFlows: 150(CashFromOperatingActivities)

HowDoBusinessActivitiesAffectFinancials?

ForExample:
CompanySellsObsoleteFactoryEquipmentFor$200.
AssetHasNetBookValueOf$50.

5/18/2014

ImpactOfTransactionsOnFinancials

+$200$50
+$150
(Cash)(NetFixedAsset)(Gain OnSale)

Statement
OfCash
Flows

Income
Statement

BalanceSheet: +200(Cash),50(NetFixedAsset),+150(Ret.Earnings)
IncomeStatement: +150(Income)DueToNetGainOnSale
StatementofCashFlows: +200(CashFromInvestingActivities)

HowDoBusinessActivitiesAffectFinancials?

ForExample:
CompanyReceives$1MCashPaymentUponSigning
ANewLongTermSupplyAgreement.

5/18/2014

ImpactOfTransactionsOnFinancials

+$1M
(Cash)

$1M
(Income)

Statement
OfCash
Flows

Income
Statement

BalanceSheet: +$1M(Cash),($1M)(Ret.Earnings)
IncomeStatement: +$1M(NetIncome)

StatementofCashFlows: +$1M(CashFromOperatingActivities)

Can We Recognize This Income?

ImpactOfTransactionsOnFinancials

+$1M
$1M
(Cash)(NonCashLiab)

$0M

Statement
OfCash
Flows

Income
Statement

Balance Sheet: +$1M(Cash),($1M)(NonCashLiability)

Income Statement: None
Statement of Cash Flows: +$1M(CashFromOperatingActivities)