Managerial Accounting Managerial Accounting

Structure of Financial StatementsStructure of Financial Statements

Topic CoverageTopic Coverage1. Consolidated balance sheet2. Consolidated income statement3. Consolidated cash flow statement4. Monthly cash flow statement and LOC needs5. Linkages between financial statements6. Self test of statement linkage understanding

Annual Annual Consolidated Consolidated Balance SheetBalance Sheet

Basic Structure of the Basic Structure of the Balance SheetBalance Sheet

Assets: Liabilities and Net Worth:

Current assets Current liabilities

plus Intermediate assets plus Intermediate liabilities

plus Long term assets plus long term liabilities

plus Net worth

equals Total assets equals Total liabilities and net worth

Assets: Liabilities and Net Worth:

Current assets Current liabilities

plus Intermediate assets plus Intermediate liabilities

plus Long term assets plus long term liabilities

plus Net worth

equals Total assets equals Total liabilities and net worth

Often referred to as equity

Often referred to as equity

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Current Asset SegmentCurrent Asset Segment

Current assets:

Cash _________Savings and time deposits _________Marketable securities _________Accounts receivable _________Short term notes receivable _________Unsold production inventories _________Supplies on hand _________Prepaid expenses _________Other Total current assets _________

Non-Current Asset SegmentNon-Current Asset Segment

Intermediate assets:

Intermediate notes receivable __________Equipment __________Machinery and motor vehicles __________Other intermediate assets Total intermediate assets__________

Long term assets:

Long term notes receivable __________Buildings and other structures __________Land __________Other long term assets Total long term assets __________

Current Liabilities SegmentCurrent Liabilities Segment

Current liabilities

Accounts payable __________Short term notes payable __________Current payment on term loans __________Accrued interest __________Accrued taxes __________Accrued rents and leases __________Contingent tax on current assets Total current liabilities __________

Non-Current Liabilities SegmentNon-Current Liabilities SegmentIntermediate liabilities

Intermediate notes less current payment __________Sales contract less current payment __________Contingent tax in intermediate assets __________Other Total intermediate liabilities __________

Long term liabilities

Mortgages less current payments __________Land contracts less current payment __________Contingent liability on long term assets __________Other Total long term liabilities __________

Annual Consolidated Annual Consolidated Income StatementIncome Statement

Basic Structure Basic Structure of Income Statementof Income Statement

Cash receipts from product salesMinus Operating expensesEquals Net cash income from operationsPlus Gain (loss) on sale of intermediate and long term assetsPlus Cash subsidies receivedEquals Income (loss) before taxes and extraordinary itemsMinus Provision for income taxesEquals Income before extraordinary itemsPlus Extraordinary itemsEquals Net cash income

Cash receipts from product salesMinus Operating expensesEquals Net cash income from operationsPlus Gain (loss) on sale of intermediate and long term assetsPlus Cash subsidies receivedEquals Income (loss) before taxes and extraordinary itemsMinus Provision for income taxesEquals Income before extraordinary itemsPlus Extraordinary itemsEquals Net cash income

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Annual and MonthlyAnnual and MonthlyCash Flow StatementsCash Flow Statements

Basic Structure of Basic Structure of Cash Flow StatementCash Flow Statement

Cash availableMinus Cash requiredEquals Cash available less cash requiredPlus Savings withdrawalsEquals Cash positionPlus Net borrowingMinus Other uses of cashMinus Additions to savingsEquals Ending cash balance

Cash availableMinus Cash requiredEquals Cash available less cash requiredPlus Savings withdrawalsEquals Cash positionPlus Net borrowingMinus Other uses of cashMinus Additions to savingsEquals Ending cash balance

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Cash Available SegmentCash Available SegmentCash available

Beginning cash balance __________Cash receipts from product sales __________Net gain on sale of assets __________Cash subsidies received __________Other cash available Total cash available __________

Cash Required SegmentCash Required Segment

Cash required

Cash operating expenses __________Income and property tax payments __________Insurance policy payments __________Current payment on operating loansCurrent payment on intermediate loans __________Current payment on long term loans __________Capital expenditures __________Other cash required Total cash required __________

Annual Ending Cash BalanceAnnual Ending Cash Balance

Cash available minuscash required    + Savings withdrawal $0= Cash position   + New borrowing: $0 Intermediate term loans $0 Long term loans $0 Short term loans $0 Total new borrowing   - Other uses of cash: $0 Short term loan payments: $0 Interest payments $0 Principal payments $0 Additions to saving $0   = Ending cash

$0

$0

$0

$0

Monthly Cash AvailableMonthly Cash Available

January February March ……..Cash available

Beginning cash balance ______ ______ ______Cash receipts from product sales ______ ______ ______Net gain on sale of assets ______ ______ ______Cash subsidies received ______ ______ ______Other cash available Total cash available ______ ______ ______

Monthly Cash RequiredMonthly Cash Required

January February March ……..Cash required

Cash operating expenses ______ ______ ______Income and property tax payments ______ ______ ______ Insurance policy payments ______ ______ ______Current payment on operating loans ______ ______ ______Current payment on intermediate loans ______ ______ ______ Current payment on long term loans ______ ______ ______ Capital expenditures ______ ______ ______ Other cash required Total cash required ______ ______ ______

Monthly Cash PositionMonthly Cash Position January February March ……..

Cash available ______ ______ ______Cash required ______ ______ ______Savings withdrawalCash position ______ ______ ______

Indicates monthly cash flowsurpluses or deficits beforeborrowing on a Line of Creditor LOC…

Indicates monthly cash flowsurpluses or deficits beforeborrowing on a Line of Creditor LOC…

Monthly and Annual Monthly and Annual BalancesBalances

November December Year  

Total debt outstanding

Operating loan balance

Intermediate term loan balance

Long term loan balance

       

      Accrued interest

$0 Operating loans

$0 Intermediate term loans

Long term loans

       

Cash position

$0 $0 $0

$0 $0 $0

$0 $0 $0

$0$0

$0

$0 $0

$0 $0 $0

$0 $0 $0

Ending cash balanceEnding cash balance

Financial Statement Financial Statement LinkagesLinkages

2007 Cash Flow StatementSources of cash:Beginning cash balanceCash receipts from product salesOther sources of cash Total sources of cash

Uses of cash:Cash operating expensesInterest paymentsPrincipal paymentsCapital expendituresWithdrawals of cashOther selected uses of cashEnding cash balance Total uses of cash

Basic structure:Total sources = total uses

2007 Income StatementCash receipts from product salesOther income Total income

Cash operating expensesInterest paymentsOther cash expensesDepreciation Total expenses

Net income from operationsAllowance for taxes Net income

Basic structure:EBIT = total income – total expenses + interest payments

Interrelationships Between Financial Statements

Balance Sheet 12/31/07Ending cash balanceOther current assets Total current assets

Machinery and equipmentBuildings and improvementsLand Total assets

Accounts payable Current loan paymentAllowance for taxesOther current liabilities Total current liabilities

Remaining balance on loans Total liabilities

Equity

Basic Structure:Equity = total assets – totalLiabilitiesEquity = Retained net Income + asset revaluations

Other statements and schedules:Statement of Change in Owner EquityDepreciable asset schedules

2007 Cash Flow StatementSources of cash:Beginning cash balanceCash receipts from product salesOther sources of cash Total sources of cash

Uses of cash:Cash operating expensesInterest paymentsPrincipal paymentsCapital expendituresWithdrawals of cashOther selected uses of cashEnding cash balance Total uses of cash

Basic structure:Total sources = total uses

2007 Income StatementCash receipts from product salesOther income Total income

Cash operating expensesInterest paymentsOther cash expensesDepreciation Total expenses

Net income from operationsAllowance for taxes Net income

Basic structure:EBIT = total income – total expenses + interest payments

Interrelationships Between Financial Statements

Balance Sheet 12/31/07Ending cash balanceOther current assets Total current assets

Machinery and equipmentBuildings and improvementsLand Total assets

Accounts payable Current loan paymentAllowance for taxesOther current liabilities Total current liabilities

Remaining balance on loans Total liabilities

Equity

Basic Structure:Equity = total assets – totalliabilities Equity = Retained net Income + asset revaluations

Other statements and schedules:Statement of Change in Owner EquityDepreciable asset schedules

2007 Cash Flow StatementSources of cash:Beginning cash balanceCash receipts from product salesOther sources of cash Total sources of cash

Uses of cash:Cash operating expensesInterest paymentsPrincipal paymentsCapital expendituresWithdrawals of cashOther selected uses of cashEnding cash balance Total uses of cash

Basic structure:Total sources = total uses

2007 Income StatementCash receipts from product salesOther income Total income

Cash operating expensesInterest paymentsOther cash expensesDepreciation Total expenses

Net income from operationsAllowance for taxes Net income

Basic structure:EBIT = total income – total expenses + interest payments

Interrelationships Between Financial Statements

Balance Sheet 12/31/07Ending cash balanceOther current assets Total current assets

Machinery and equipmentBuildings and improvementsLand Total assets

Accounts payable Current loan paymentAllowance for taxesOther current liabilities Total current liabilities

Remaining balance on loans Total liabilities

Equity

Basic Structure:Equity = total assets – totalliabilities Equity = Retained net Income + asset revaluations

Other statements and schedules:Statement of Change in Owner EquityDepreciable asset schedules

2007 Cash Flow StatementSources of cash:Beginning cash balanceCash receipts from product salesOther sources of cash Total sources of cash

Uses of cash:Cash operating expensesInterest paymentsPrincipal paymentsCapital expendituresWithdrawals of cashOther selected uses of cashEnding cash balance Total uses of cash

Basic structure:Total sources = total uses

2007 Income StatementCash receipts from product salesOther income Total income

Cash operating expensesInterest paymentsOther cash expensesDepreciation Total expenses

Net income from operationsAllowance for taxes Net income

Basic structure:EBIT = total income – total expenses + interest payments

Interrelationships Between Financial Statements

Balance Sheet 12/31/07Ending cash balanceOther current assets Total current assets

Machinery and equipmentBuildings and improvementsLand Total assets

Accounts payable Current loan paymentAllowance for taxesOther current liabilities Total current liabilities

Remaining balance on loans Total liabilities

Equity

Basic Structure:Equity = total assets – totalliabilities Equity = Retained net Income + asset revaluations

Other statements and schedules:Statement of Change in Owner EquityDepreciable asset schedules

2007 Cash Flow StatementSources of cash:Beginning cash balanceCash receipts from product salesOther sources of cash Total sources of cash

Uses of cash:Cash operating expensesInterest paymentsPrincipal paymentsCapital expendituresWithdrawals of cashOther selected uses of cashEnding cash balance Total uses of cash

Basic structure:Total sources = total uses

2007 Income StatementCash receipts from product salesOther income Total income

Cash operating expensesInterest paymentsOther cash expensesDepreciation Total expenses

Net income from operationsAllowance for taxes Net income

Basic structure:EBIT = total income – total expenses + interest payments

Interrelationships Between Financial Statements

Balance Sheet 12/31/07Ending cash balanceOther current assets Total current assets

Machinery and equipmentBuildings and improvementsLand Total assets

Accounts payable Current loan paymentAllowance for taxesOther current liabilities Total current liabilities

Remaining balance on loans Total liabilities

Equity

Basic Structure:Equity = total assets – totalliabilities Equity = Retained net Income + asset revaluations

Other statements and schedules:Statement of Change in Owner EquityDepreciable asset schedules

2007 Cash Flow StatementSources of cash:Beginning cash balanceCash receipts from product salesOther sources of cash Total sources of cash

Uses of cash:Cash operating expensesInterest paymentsPrincipal paymentsCapital expendituresWithdrawals of cashOther selected uses of cashEnding cash balance Total uses of cash

Basic structure:Total sources = total uses

2007 Income StatementCash receipts from product salesOther income Total income

Cash operating expensesInterest paymentsOther cash expensesDepreciation Total expenses

Net income from operationsAllowance for taxes Net income

Basic structure:EBIT = total income – total expenses + interest payments

Interrelationships Between Financial Statements

Balance Sheet 12/31/07Ending cash balanceOther current assets Total current assets

Machinery and equipmentBuildings and improvementsLand Total assets

Accounts payable Current loan paymentAllowance for taxesOther current liabilities Total current liabilities

Remaining balance on loans Total liabilities

Equity

Basic Structure:Equity = total assets – totalliabilities Equity = Retained net Income + asset revaluations

Other statements and schedules:Statement of Change in Owner EquityDepreciable asset schedules

2007 Cash Flow StatementSources of cash:Beginning cash balanceCash receipts from product salesOther sources of cash Total sources of cash

Uses of cash:Cash operating expensesInterest paymentsPrincipal paymentsCapital expendituresWithdrawals of cashOther selected uses of cashEnding cash balance Total uses of cash

Basic structure:Total sources = total uses

2007 Income StatementCash receipts from product salesOther income Total income

Cash operating expensesInterest paymentsOther cash expensesDepreciation Total expenses

Net income from operationsAllowance for taxes Net income

Basic structure:EBIT = total income – total expenses + interest payments

Interrelationships Between Financial Statements

Balance Sheet 12/31/07Ending cash balanceOther current assets Total current assets

Machinery and equipmentBuildings and improvementsLand Total assets

Accounts payable Current loan paymentAllowance for taxesOther current liabilities Total current liabilities

Remaining balance on loans Total liabilities

Equity

Basic Structure:Equity = total assets – totalliabilities Equity = Retained net Income + asset revaluations

Other statements and schedules:Statement of Change in Owner EquityDepreciable asset schedules

2007 Cash Flow StatementSources of cash:Beginning cash balanceCash receipts from product salesOther sources of cash Total sources of cash

Uses of cash:Cash operating expensesInterest paymentsPrincipal paymentsCapital expendituresWithdrawals of cashOther selected uses of cashEnding cash balance Total uses of cash

Basic structure:Total sources = total uses

2007 Income StatementCash receipts from product salesOther income Total income

Cash operating expensesInterest paymentsOther cash expensesDepreciation Total expenses

Net income from operationsAllowance for taxes Net income

Basic structure:EBIT = total income – total expenses + interest payments

Interrelationships Between Financial Statements

Balance Sheet 12/31/07Ending cash balanceOther current assets Total current assets

Machinery and equipmentBuildings and improvementsLand Total assets

Accounts payable Current loan paymentAllowance for taxesOther current liabilities Total current liabilities

Remaining balance on loans Total liabilities

Equity

Basic Structure:Equity = total assets – totalliabilities Equity = Retained net Income + asset revaluations

Other statements and schedules:Statement of Change in Owner EquityDepreciable asset schedules

2007 Cash Flow StatementSources of cash:Beginning cash balanceCash receipts from product salesOther sources of cash Total sources of cash

Uses of cash:Cash operating expensesInterest paymentsPrincipal paymentsCapital expendituresWithdrawals of cashOther selected uses of cashEnding cash balance Total uses of cash

Basic structure:Total sources = total uses

2007 Income StatementCash receipts from product salesOther income Total income

Cash operating expensesInterest paymentsOther cash expensesDepreciation Total expenses

Net income from operationsAllowance for taxes Net income

Basic structure:EBIT = total income – total expenses + interest payments

Interrelationships Between Financial Statements

Balance Sheet 12/31/07Ending cash balanceOther current assets Total current assets

Machinery and equipmentBuildings and improvementsLand Total assets

Accounts payable Current loan paymentAllowance for taxesOther current liabilities Total current liabilities

Remaining balance on loans Total liabilities

Equity

Basic Structure:Equity = total assets – totalliabilities Equity = Retained net Income + asset revaluations

Other statements and schedules:Statement of Change in Owner EquityDepreciable asset schedules

2007 Cash Flow StatementSources of cash:Beginning cash balanceCash receipts from product salesOther sources of cash Total sources of cash

Uses of cash:Cash operating expensesInterest paymentsPrincipal paymentsCapital expendituresWithdrawals of cashOther selected uses of cashEnding cash balance Total uses of cash

Basic structure:Total sources = total uses

2007 Income StatementCash receipts from product salesOther income Total income

Cash operating expensesInterest paymentsOther cash expensesDepreciation Total expenses

Net income from operationsAllowance for taxes Net income

Basic structure:EBIT = total income – total expenses + interest payments

Interrelationships Between Financial Statements

Balance Sheet 12/31/07Ending cash balanceOther current assets Total current assets

Machinery and equipmentBuildings and improvementsLand Total assets

Accounts payable Current loan paymentAllowance for taxesOther current liabilities Total current liabilities

Remaining balance on loans Total liabilities

Equity

Basic Structure:Equity = total assets – totalliabilities Equity = Retained net Income + asset revaluations

Other statements and schedules:Statement of Change in Owner EquityDepreciable asset schedules

2007 Cash Flow StatementSources of cash:Beginning cash balanceCash receipts from product salesOther sources of cash Total sources of cash

Uses of cash:Cash operating expensesInterest paymentsPrincipal paymentsCapital expendituresWithdrawals of cashOther selected uses of cashEnding cash balance Total uses of cash

Basic structure:Total sources = total uses

2007 Income StatementCash receipts from product salesOther income Total income

Cash operating expensesInterest paymentsOther cash expensesDepreciation Total expenses

Net income from operationsAllowance for taxes Net income

Basic structure:EBIT = total income – total expenses + interest payments

Interrelationships Between Financial Statements

Balance Sheet 12/31/07Ending cash balanceOther current assets Total current assets

Machinery and equipmentBuildings and improvementsLand Total assets

Accounts payable Current loan paymentAllowance for taxesOther current liabilities Total current liabilities

Remaining balance on loans Total liabilities

Equity

Basic Structure:Equity = total assets – totalLiabilitiesEquity = Retained net Income + asset revaluations

Other statements and schedules:Statement of Change in Owner EquityDepreciable asset schedules

2007 Cash Flow StatementSources of cash:Beginning cash balanceCash receipts from product salesOther sources of cash Total sources of cash

Uses of cash:Cash operating expensesInterest paymentsPrincipal paymentsCapital expendituresWithdrawals of cashOther selected uses of cashEnding cash balance Total uses of cash

Basic structure:Total sources = total uses

2007 Income StatementCash receipts from product salesOther income Total income

Cash operating expensesInterest paymentsOther cash expensesDepreciation Total expenses

Net income from operationsAllowance for taxes Net income

Basic structure:EBIT = total income – total expenses + interest payments

Interrelationships Between Financial Statements

Balance Sheet 12/31/07Ending cash balanceOther current assets Total current assets

Machinery and equipmentBuildings and improvementsLand Total assets

Accounts payable Current loan paymentAllowance for taxesOther current liabilities Total current liabilities

Remaining balance on loans Total liabilities

Equity

Basic Structure:Equity = total assets – totalLiabilitiesEquity = Retained net Income + asset revaluations

Other statements and schedules:Statement of Change in Owner EquityDepreciable asset schedules

2007 Cash Flow StatementSources of cash:Beginning cash balanceCash receipts from product salesOther sources of cash Total sources of cash

Uses of cash:Cash operating expensesInterest paymentsPrincipal paymentsCapital expendituresWithdrawals of cashOther selected uses of cashEnding cash balance Total uses of cash

Basic structure:Total sources = total uses

2007 Income StatementCash receipts from product salesOther income Total income

Cash operating expensesInterest paymentsOther cash expensesDepreciation Total expenses

Net income from operationsAllowance for taxes Net income

Basic structure:EBIT = total income – total expenses + interest payments

Interrelationships Between Financial Statements

Balance Sheet 12/31/07Ending cash balanceOther current assets Total current assets

Machinery and equipmentBuildings and improvementsLand Total assets

Accounts payable Current loan paymentAllowance for taxesOther current liabilities Total current liabilities

Remaining balance on loans Total liabilities

Equity

Basic Structure:Equity = total assets – totalLiabilitiesEquity = Retained net Income + asset revaluations

Other statements and schedules:Statement of Change in Owner EquityDepreciable asset schedules

2007 Cash Flow StatementSources of cash:Beginning cash balanceCash receipts from product salesOther sources of cash Total sources of cash

Uses of cash:Cash operating expensesInterest paymentsPrincipal paymentsCapital expendituresWithdrawals of cashOther selected uses of cashEnding cash balance Total uses of cash

Basic structure:Total sources = total uses

2007 Income StatementCash receipts from product salesOther income Total income

Cash operating expensesInterest paymentsOther cash expensesDepreciation Total expenses

Net income from operationsAllowance for taxes Net income

Basic structure:EBIT = total income – total expenses + interest payments

Interrelationships Between Financial Statements

Balance Sheet 12/31/07Ending cash balanceOther current assets Total current assets

Machinery and equipmentBuildings and improvementsLand Total assets

Accounts payable Current loan paymentAllowance for taxesOther current liabilities Total current liabilities

Remaining balance on loans Total liabilities

Equity

Basic Structure:Equity = total assets – totalLiabilitiesEquity = Retained net Income + asset revaluations

Other statements and schedules:Statement of Change in Owner EquityDepreciable asset schedules

2007 Cash Flow StatementSources of cash:Beginning cash balanceCash receipts from product salesOther sources of cash Total sources of cash

Uses of cash:Cash operating expensesInterest paymentsPrincipal paymentsCapital expendituresWithdrawals of cashOther selected uses of cashEnding cash balance Total uses of cash

Basic structure:Total sources = total uses

2007 Income StatementCash receipts from product salesOther income Total income

Cash operating expensesInterest paymentsOther cash expensesDepreciation Total expenses

Net income from operationsAllowance for taxes Net income

Basic structure:EBIT = total income – total expenses + interest payments

Interrelationships Between Financial Statements

Balance Sheet 12/31/07Ending cash balanceOther current assets Total current assets

Machinery and equipmentBuildings and improvementsLand Total assets

Accounts payable Current loan paymentAllowance for taxesOther current liabilities Total current liabilities

Remaining balance on loans Total liabilities

Equity

Basic Structure:Equity = total assets – totalLiabilitiesEquity = Retained net Income + asset revaluations

Other statements and schedules:Statement of Change in Owner EquityDepreciable asset schedules

Sample QuestionSample Question

What is this firm’s net income and equity?What is this firm’s net income and equity?What is this firm’s net income and equity?What is this firm’s net income and equity?

Sample QuestionSample Question

What is this firm’s net income and equity?What is this firm’s net income and equity?What is this firm’s net income and equity?What is this firm’s net income and equity?

Current assets

Current assets

Current liabilities

Current liabilities

Sample QuestionSample Question

What is this firm’s net income and equity?What is this firm’s net income and equity?What is this firm’s net income and equity?What is this firm’s net income and equity?

Total assets

Total assets

Total liabilities

Total liabilities

Sample QuestionSample Question

What is this firm’s net income and equity?What is this firm’s net income and equity?What is this firm’s net income and equity?What is this firm’s net income and equity?

Variable expenses

Variable expenses

Fixed expenses

Fixed expenses

Calculation of equityCalculation of equity:Total current assets = 10,000 + 11,000 + 22,000 = 43,000Total current liabilities = 1,200 + 7,500 + 7,213 = 15,913Total assets = total current assets + 76,500 +14,000 + 99,500 = 233,000Total liabilities = total current liabilities + 29,500 + 1,200 = 46,613Equity = 233,000 – 46,613 = 186,387

Calculation of equityCalculation of equity:Total current assets = 10,000 + 11,000 + 22,000 = 43,000Total current liabilities = 1,200 + 7,500 + 7,213 = 15,913Total assets = total current assets + 76,500 +14,000 + 99,500 = 233,000Total liabilities = total current liabilities + 29,500 + 1,200 = 46,613Equity = 233,000 – 46,613 = 186,387

Calculation of net incomeCalculation of net income:Cash receipts from product sales = 73,000Total operating expenses = 51,200 + 2,500 + 7,400 = 61,100Net income from operations = 73,000 – 61,100 = 11,900Net income before taxes = 11,900Net income = 11,900 – 7,213 = 4,687Net cash income = 4,687 + 7,400 = 12,087