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Chapter 07:Financial StatementsMcGraw-Hill/IrwinCopyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Financial StatementsIn Chapter 7, you learn about Peachtree’s financialstatements. Once journal entries have been recordedand posted, financial statements are automaticallycalculated by Peachtree.In Chapters 1 through 6, you explored the samplecompany, Bellwether Garden Supply. You learned howPCA’s user interface works and how to navigate thesoftware. You also journalized and posted various typesof transactions.Beginning in Chapter 9, you will learn how to use thesefeatures to set up service businesses. Then, in Chapter12, you will set up merchandising businesses.In Parts 2 through 4 of the textbook, you set up 12businesses which include service, merchandising,nonprofit, and manufacturing businesses.7-2
Balance Sheet, p. 226A balance sheet is a list of assets,liabilities, and capital of a businessentity as of a specific date, such as thelast day of an accounting period or thelast day of the year.The March 31, 2012 balance sheet isshown on pages 233-234.7-3
Gross Profit by Departments, pp. 226-227A departmentalized accounting system providesinformation that management can use toevaluate the profitability or cost effectiveness ofa department’s activities. The Gross Profit byDepartments financial statement is a customreport designed for Bellwether that details eachdepartment’s year-to-date gross profit as of thecurrent month.The Year-to-Date Departmental Gross ProfitTotals are shown on page 235.7-4
Income Statement, p. 227The income statement is a summary of the revenues andexpenses a company accrues over a period of time, suchas an accounting period or a year. Only revenue andexpense accounts are displayed on the income statement.In addition to dollar figures, Peachtree’s income statementalso includes percentage-of-revenue columns for thecurrent month. The percentages shown for each expense,total expenses, and net income (or net loss) indicate therelationship of each item to total revenues.The income statement is shown on page 237.7-5
Statement of Cash Flow, p. 227The statement of cash flow summarizes the effectson cash of the operating, investing, and financingactivities of a company for a period and the year todate.The statement of cash flow reports cashtransactions associated with the purchase or saleof fixed assets (Investing Activities) and cash paidto or received from creditors and owners(Financing Activities).The statement of cash flow is shown on page 239.7-6
Statement of Retained Earnings, p. 228The statement of retained earnings showsbeginning and ending retained earningsamounts, adjustments made to retainedearnings within the report period, and the detailfor all Equity-gets closed accounts. Theretained earnings balance is the cumulative,lifetime earnings of the company less itscumulative losses and dividends.The Statement of Retained Earnings is shownon page 240.7-7
Statement of Changes in FinancialPosition, p. 228The statement of changes in financial positiondescribes changes in a company’s financialposition that may not be obvious from otherfinancial statements. The Statement ofChanges in Financial Position s shown on page241.Statement of Changes in Financial PositionPeachtree includes the Statement of Changes in Financial Position eventhough current accounting standards require that a statement of cash flows isrequired as part of a full set of financial statements in place of a statement ofchanges in financial position.7-8
Interrelationship of Financial Statements,p. 228-229No single financial statement tells the entire story.The income statement indicates how muchrevenue a business has earned during a specificperiod of time, but it says nothing about howmuch of that amount has or has not beenreceived in cash. For information about cash andaccounts receivable, you have to look at thebalance sheet, statement of cash flow, andstatement of changes in financial position.7-9
Peachtree TipSince the Exercise 6-2 backup (textbook page 220)includes all the data necessary for the financialstatements, there is no need to back up in Chapter 7.Do not delete the Exercise 6-2.ptb file. It is used foractivities in Chapters 16-18 (Part 4).7-10
Backing Up Chapter 7Backup NameExcel (.xlsx) and Adobe (.pdf)Chapter 7.ptb (optional)KBPage No.3,702 KB242Chapter 7 Financial Statements.xlsx37 KB243Chapter 7 Balance Sheet.pdf12 KB244Chapter 7 Income Statement.pdf14 KB244Chapter 7 Dept Gross Profit Total.pdf8 KB244Chapter 7 Statement of Cash Flow.pdf11 KB244Chapter 7 Statement of Retained Earnings.pdf7 KB244Chapter 7 Statement of Changes in FinancialPosition.pdf11 KB2447-11
Glossary of TermsChapter 77-12
Net Income, p. 227A net income results when revenuesexceed expenses.7-13
Net loss, p. 227A net loss results when expenses exceedrevenues.7-14
Masking, p. 235A feature included in Peachtree calledmasking allows you to departmentalizefinancial statements. Masking is the abilityto limit information on the report to a singledivision, department, location, or typecode.7-15
Going to the Net, p. 245Access the article How to Value Stocks: How toRead a Balance Sheet alue-stocks-how-toread-a-balance-sheet.aspxRead the article. Answer the following questions.What are liquid assets?What are the liquid assets called on the balancesheet?In the More on reading a balance sheet section,link to two other sites. Define each link; includethe website addresses in your answer.7-16
Analysis Questions, p. 2481. How are the income statement andbalance sheet related to each other?2. Using Bellwether as an example, whatcash accounts does the statement ofcash flow report?3. Does the statement of cash flow useinformation from both the balance sheetand income statement? The answer is on the next slide.7-17
Answer to Analysis QuestionsThe financial statements work together. No single financial statement tells theentire story. The income statement indicates how much revenue a businesshas earned during a specific period of time, but it says nothing about how muchof that amount has or has not been received in cash. For information aboutcash and accounts receivable, we have to look at the balance sheet, statementof cash flow, and statement of changes in financial position.1. The net income (or net loss) from the income statement is on the balancesheet’s capital section. The net income or net loss is used to update thebalance sheet’s capital amount: Capital Beginning of the Year - Net Loss(or Net Income) Total Capital.2. The total of all the cash accounts on the Balance Sheet (Petty Cash, Cashon Hand, Regular Checking Account, Payroll Checking Account, SavingsAccount, and Money-Market Fund) is shown as the Cash Balance at End ofPeriod on the statement of cash flow.3. Yes, the statement of cash flow uses information from both the balancesheet and income statement.7-18
Assessment Rubric, p. 248ReportBalance SheetIncomeStatementDateMenuMarchReports & Forms;31, 2012 Financial StatementsOr, Find a Report area ofBusiness StatusNavigation Center.Window Standard? BalanceSheetFor thethreemonthsendedMarch31, 2012 Standard IncomeStmntReports & Forms,Financial StatementsOr, Find a Report area ofBusiness StatusNavigation Center.7-19
Online Learning Center Go online to www.mhhe.com/yacht2012 for additionalresources. Link to Student Edition, select Chapter 7.o Interactive Testingo Glossary of Termso Narrated PowerPointso Assessment Rubrico Going to the Neto QA Templates7-20
Statement of Cash Flow, p. 227 The statement of cash flow summarizes the effects on cash of the operating, investing, and financing activities of a company for a period and the year to
