ACCT
Expenses are resources used to generate revenues
Sales - COGS = GP
Keeping the money from Net Income would be called retained earnings
To find ending retained earnings add retained earnings from the previous year to the net income of the current year and then subtract dividends paid out
1. Operating Activities – Everyday activities needed to run business
2. Investing Activities – Purchases/Sales of Long Term Assets
3. Financing Activities – Changes in Stockholders’ Equity and Long Term Liabilities
Net income comes from the income statement goes down into retained earnings in the retained earnings sheet you then take that number and use it for the balance sheet
Balance Sheet
What does the company own?
How did they get what they own?
How much equity do they have?
For example you bought a house for 1,000,000 and you put down 20% so 1,000,000 = 800,000 (liabilities) + 200,000 (equity)
Current Assets include
Cash/Cash equivalents
Short-term marketable securities ( with a plan to sell in 12 months or less)
Accounts receivable (selling a good and extending credit)
Inventory - goods available for sale that a company holds in stock, including raw materials, work in progress, and finished products.
Prepaid expenses - payments made in advance for goods or services to be received in the future, which can provide short-term benefits to the company. (An expense isn’t an expense UNTIL its used up/incurred)
Supplies - Used to operate the business (once used up they turn into an expense)
Unearned revenue is when someone pre pays for something before actually getting the good. This is considered a liability on the balance sheet as it represents an obligation to deliver goods or services in the future.
Accumulated Depreciation is called a “contra-asset account” meaning subtract AD from the value of a asset account/book value
Intangible assets - Don’t have physical attributes BUT they benefit company over many years like patents, trademarks, and copyrights, goodwill. These are all long-term assets
Liabilities (debt) can be current or long term
CL
Accounts payable - Money owed to suppliers
Accrued expenses - Unpaid taxes/wages
Unearned revenue/deferred revenue - Customer paid but we haven’t given them the good yet
Short term note payable - Due in 12 months or less
LTL
Note payable - Longer than 12 months
Bond Payable
Mortgage payable
Stockholder’s Equity
Contributed capital - Investments made by the owner
Retained earnings
Book value of an asset is the historical cost - the accumulated depreciation
When you sell an asset for more than the book value you have a gain if you sell it for less you have a loss
Statement of retained earnings is one part of the statement of stockholder’s equity, you need it to do the SHE (Shareholder equity)
9/2/26
December 31 Total Assets Total Liabilities
2023 $ 25,000 $ 12,000
2024 79,000 67,000
2025 184,000 137,000
1. Compute total stockholders’ equity at year end 2023, 2024, & 2025.
2023: Total Stockholders’ Equity = Total Assets - Total Liabilities = $25,000 - $12,000 = $13,000
2024: Total Stockholders’ Equity = $79,000 - $67,000 = $12,000
2025: Total Stockholders’ Equity = $184,000 - $137,000 = $47,000
2. Compute the amount of net income (or loss) for 2024 assuming NO dividends
were paid during the year and NO new investment by owner was made.
Answer: The Net Income is -1000
3. Compute the amount of net income (or loss) for 2025 assuming that dividends
paid during the year amounted to $10,000 and the owner invested an additional
$5,000 in exchange for common stock.
Answer: Beg SH equity of 12,000 + NI (40,000) - Dividends (10,000) + Common Stock(5000) = 47,000
The following items are available from the records of Victor Corporation at the end of its
fiscal year, December 31, 2025:
Accounts Payable $ 16,900
Delivery Expense $ 4,600
Accounts Receivable 11,700
Notes Payable, due Mar 2027 50,000
Buildings 35,000
Office Equipment 12,000
Inventory 12,100
Retained Earnings (12/31/25) 26,300
Common Stock (CS) 25,000
Salary and Wage Expense 8,230
Cash 21,800
Sales Revenue 74,220
Machinery 25,800
Investments (Marketable securities) – Short term 5,800
Cost of Goods Sold 45,000
Patent 10,000
Unearned Revenues 5,000
Accumulated Depreciation 7,000
Prepaid Expenses 4,000
Accrued Expenses 8,000
Dividends 12,000
Income Statement for 2025
Sales Revenue 74,220
-COGS 45,000
Gross Profit 29,220
Delivery Expense 4,600
Salary and Wage Expense 8,230
Total Expenses = 12,830
Net Income = Gross Profit - Total Expenses = 29,220 - 12,830 = 16,390
Statement of change in Retained Earnings
1/1 Retained Earnings = 21,910
Net Income 16,390
-12,000 Dividends
Ending retained earnings = 26,300
So you do Net income - Dividends to get 4930 then do ending retained earnings minus that to get beginning retained earnings
Balance Sheet
Assets
Current Assets
Cash: 21,800
Accounts Receivable: 11,700
Marketable Securities: 5,800
Inventory: 12,100
Pre-paid Expenses: 4,000
Total Current Assets = 55,400
Long-term assets
Property Plant and Equipment
Building: 35,000
Machinery: 25,800
Office Equipment 12,000
Total property plant and equipment = $35,000 + 25,800 + 12,000 = 72,800 - Accumulated Depreciation which is 7,000 so the new total is 65,800
Intangible Assets
Patent: 10,000
Total Long term assets = 75,800
Total Assets = 131,200
Current Liabilities
Accounts Payable: 16,900
Unearned Revenues: 5,000
Accrued Expenses: 8,000
Total current liabilities: 29,900
Long Term Liabilities
Notes Payable: 50,000
Total Liabilities: 79,900
Stockholder’s Equity
Common Stock: 25,000
Retained Earnings 12/31: 26,300
Total Stockholder’s equity: 51,300
Total Liabilities + Stockholder’s Equity
79,900 + 51,300 = 131,200
Statement of Cash Flows
Operating Activities
Ex. Sales Revenue, collecting accounts, payments for inventory, payments for utilities, cash for everything that has to do with running a business outflow or inflow for the selling/making of your good. Rent, wages, utilities. Short term liabilities usually
Investing Activities
Has to do with the purchase/selling of long term assets such as property, plant, and equipment, as well as investments in securities or acquisitions of other businesses.
Financing Activities
Where you got the capital to run the business like borrowing money or issuing stock, which can provide the necessary funds for expansion and operational needs. Long term liabilities usually. Dividends, paying back a loan
Balance Sheet Ratios
Liquidity Ratio: Current Assets - Current Liabilities
Current Ratio: Current Assets/Current Liabilities a good standard is 2:1
Income Statement Ratios
Gross Profit Ratio: Gross Profit/Sales
Profit Margin: Net Income/Sales