Accounting Principles

Thirteenth Edition
Weygandt Kimmel Kieso

Chapter 1

Accounting in Action
Prepared by
Coby Harmon
University of California, Santa Barbara
Westmont College
Chapter 1 (b) – Financial statement
format

Learning Objectives
Describe the four financial statements and how they are
prepared.

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 The Four Financial Statements
Companies prepare four financial statements:

Owner's Statement Statement

Income
Equity of Financial of Cash
Statement
Statement Position Flows

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 Financial Statements
Net income will result during a time period when:
a. assets exceed liabilities
b. assets exceed revenues
c. expenses exceed revenues
d. revenues exceed expenses

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 Income Statement
Financial Revenues €4,700

Statements Service revenue

Expenses
Salaries and wages expense 900
Softbyte Rent expense 600
Advertising expense 250
statements for Utilities expense 200
the Month Total expenses 1,950
Net income €2,750
Ended
September 30, Owner’s Equity Statement
2020 Owner’s capital, September 1 € 0
Add: Investments 15,000
Add: Net income 2,750
ILLUSTRATION 1.9
Financial statements and
Less: Drawings 1,300
their interrelationships Owner’s capital, September 30 $16,450

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 Owner’s Equity Statement

Financial Owner’s capital, September 1

Add: Investments
€ 0
15,000
Statements Add: Net income
Less: Drawings
2,750
1,300
Owner’s capital, September 30 €16,450
Softbyte
statements for Statement of Financial Position
Assets
the Month
Cash € 8,050
Ended Accounts receivable 1,400
September 30, Supplies 1,600
Equipment 7,000
2020 Total assets €18,050
Owner’s Equity and Liabilities
ILLUSTRATION 1.9
Accounts payable € 1,600
Financial statements and Owner’s capital 16,450
their interrelationships
Total owner’s equity and liabilities €18,050
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 Statement of Financial Position (partial)
Assets
Financial Cash
Accounts receivable
€ 8,050
1,400
Statements Supplies 1,600
Statement of Cash Flows
Softbyte Cash flows from operating activities
Cash receipts from revenues 3,300
statements for Cash payments from expenses (1,950)
the Month Net cash from operating activities 1,350
Cash flows from investing activities
Ended Purchase of equipment (7,000)
September 30, Cash flows from financing activities
Investments by owner 15,000
2020 Drawings by owner (1,300)
Net cash from financing activities 13,700
ILLUSTRATION 1.9
Net increase in cash 8,050
Financial statements and Cash at beginning of period 0
their interrelationships
Cash at end of period € 8,050
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 Income Statement
• Reports revenues and expenses for a specific period
of time
• Lists revenues first, followed by expenses
• Shows net income (or net loss)
• Does not include investment and withdrawal
transactions between owner and business in
measuring net income

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 Owner’s Equity Statement
• Reports changes in owner’s equity for a specific
period of time
• Time period is the same as that covered by the
income statement

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 Statement of Financial Position
• Reports assets, liabilities, and owner's equity at a
specific date
• Lists assets at top, followed by liabilities and owner’s
equity
• Total assets must equal total owner’s equity and
liabilities
• Snapshot of company’s financial condition at a
specific moment in time (usually month-end or year-
end)

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 Statement of Cash Flows
• Information on cash receipts and payments for a
specific period of time
• Answers the following:
 Where did cash come from?
 What was cash used for?
 What was change in cash balance?

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 Financial Statements
Which of the following financial statements is prepared as
of a specific date?
a. Statement of financial position
b. Income statement
c. Owner's equity statement
d. Statement of cash flows

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 DO IT! 5 Financial Statement Items
Presented below is selected information related to Li Fashions at
December 31, 2020. Li reports financial information monthly.
Equipment HK$10,000 Utilities Expense HK$4,000
Cash 8,000 Accounts Receivable 9,000
Service Revenue 36,000 Salaries and Wages Expense 7,000
Rent Expense 11,000 Notes Payable 16,500
Accounts Payable 2,000 Owner’s Drawings 5,000
a. Determine the total assets at December 31, 2020.
b. Determine the net income reported for December 2020.
c. Determine the owner’s equity at December 31, 2020.

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 DO IT! 5 Financial Statement Items
Li reports financial information monthly.
Equipment HK$10,000 Utilities Expense HK$4,000
Cash 8,000 Accounts Receivable 9,000
Service Revenue 36,000 Salaries and Wages Expense 7,000
Rent Expense 11,000 Notes Payable 16,500
Accounts Payable 2,000 Owner’s Drawings 5,000
a. Determine the total assets at December 31, 2020.

Cash $ 8,000
Accounts receivable 9,000
Equipment 10,000
Total assets $27,000

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 DO IT! 5 Financial Statement Items
Li reports financial information monthly.
Equipment HK$10,000 Utilities Expense HK$4,000
Cash 8,000 Accounts Receivable 9,000
Service Revenue 36,000 Salaries and Wages Expense 7,000
Rent Expense 11,000 Notes Payable 16,500
Accounts Payable 2,000 Owner’s Drawings 5,000
b. Determine the net income reported for December 2020.
Service revenue $36,000
Rent expense 11,000
Salaries and wages expense 7,000
Utilities expense 4,000
Net income $14,000

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 DO IT! 5 Financial Statement Items
Li reports financial information monthly.
Equipment HK$10,000 Utilities Expense HK$4,000
Cash 8,000 Accounts Receivable 9,000
Service Revenue 36,000 Salaries and Wages Expense 7,000
Rent Expense 11,000 Notes Payable 16,500
Accounts Payable 2,000 Owner’s Drawings 5,000
c. Determine the owner’s equity at December 31, 2020.

Total assets $27,000

Less: Notes payable expense 16,500
Less: Accounts payable 2,000
Owner’s equity $ 8,500

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