What is the formula for the income statement?

Last week, you were introduced to the basic concepts of accounting. In Week 2, we are putting in the walls of the building. We will now discuss the elements of the financial statements. By the time you have completed the work for Week 2, you will know:

• The meaning and principal items covered in the balance sheet;
• The different types of transactions and their impact on the balance sheet; and
• The nature of income and the income statement.

TOPIC B – posted Wednesday

1. What is the formula for the income statement? What information is this statement designed to provide?

2. Just like the balance sheet distinguishes current assets from non-current ones, it also reports current and non-current liabilities? What is the difference between these two categories. Why do we distinguish current items from non-current ones?

3. How is the income statement related to the balance sheet?

Great turnout at last night’s meeting! I was so happy to see the “Hollywood Squares” version of our class participants.

In order to complete your project, we needed to discuss the Accounting Cycle.

Your first worksheet in the project workbook is for Journal Entries. This is where you will record the business transactions in the Debit/Credit format we discussed.

Here are a series of journal entries. Prepare a trial balance:

Cash

Common Stock

30,000

30,000

Equipment

Cash

12,000

12,000

Supplies

Accounts Payable

5,000

5,000

Cash

Service Revenue

6,000

6,000

Rent Expense

Cash

4,000

4,000

Rent Expense

Prepaid Rent

9,000

9,000

Supplies Expense

Supplies

2,700

2,700

Cash

Unearned Revenue

18,000

18,000

Unearned Revenue

Revenue

6,000

6,000

Depreciation. Expense

Accumulated Depreciation

5,000

5,000

Totals$ 97,700  $ 97,700

TOPIC A – posted Sunday

Here is one of the most important financial statements, the Balance Sheet. Pay attention to the proper classifications of the elements and key subtotals.

1) How are current assets different from non-current assets? How are current liabilities different from non-current liabilities?  What differentiates  an account receivable vs. an accounts payable?

2) What does the current ratio measure? Is the higher the ratio always the better? Explain.

3) What does solvency mean? What data does the balance provide in order to determine solvency?

4) Cash and cash equivalents are the most liquid assets included on a company’s balance sheet. So what gets counted as cash? What is a cash equivalent?