5/18/2014

What Are The Financials Doing?

Assets Liabilities Shareholders’ Equity

What Are The Financials Doing?

Assets Liabilities Shareholders’ Equity

Cash Non Cash

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Obligations
What Are The Financials Doing?

Assets Liabilities Shareholders’ Equity

• Debt
• Payables
Cash Non Cash
• Other
Obligations

• Receivables
• Inventories
• PP&E
• Intangibles

What Are The Financials Doing?

Assets Liabilities Shareholders’ Equity

• Debt
• Payables
Cash Non Cash
• Other
Obligations
Contributed  Retained 
• Receivables Capital Earnings
• Inventories
• PP&E
• Intangibles
• Stock Issued Net Income -
• Stock Dividends
Repurchased
• Other

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What Are The Financials Doing?

Assets Liabilities Shareholders’ Equity

• Debt
• Payables
Cash Non Cash
• Other
Obligations
So When Net Income  Contributed  Retained 
Increases: Capital Earnings
• Shareholder’s Equity 
Increases
• But Cash Does Not  • Stock Issued Net Income -
Need To Go Up • Stock Dividends
Repurchased
• Other

Analyzing Transactions

Beg
Assets Liabilities Shareholders’ Equity

Cash Non Cash Contributed  Retained 

Capital Earnings
Net Income - Dividends

End Assets Liabilities Shareholders’ Equity

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Recap: Interrelationship Of The Statements

Beg
Assets Liabilities Shareholders’ Equity

Beg, Balance Sheet

Cash Non Cash Contributed  Retained 

Capital Earnings

Statement  Net Income - Dividends

Of Cash  Changes in 
Flows Shareholder  Income 
equity Statement 

End, Balance Sheet

End Assets Liabilities Shareholders’ Equity

How Do Business Activities Affect Financials?  

For Example: 
A Company’s Employees Earned Salaries Of $200 But 
Have Only Been Paid $150

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Impact Of Transactions On Financials 

‐$150                                                                +$50                                             ‐$200
(cash)                                                   (Accrued Salaries)                                       (Salary Exp)
Statement 
Income 
Of Cash  Statement 
Flows

Balance Sheet: ‐150 (Cash),   +50 (Accrued Salaries), ‐200 (Ret. Earnings)
Income Statement: ‐200 (Income) Due To ‐200 (Salary Exp) 

Statement of Cash Flows: ‐150 (Cash From Operating Activities) 

How Do Business Activities Affect Financials?  

For Example: 
Company Sells Obsolete Factory Equipment For $200.  
Asset Has Net Book Value Of $50.

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Impact Of Transactions On Financials 

+$200                         ‐$50                                                                                     +$150
(Cash)                 (Net Fixed Asset)                                                                          (Gain On Sale)
Statement 
Income 
Of Cash  Statement 
Flows

Balance Sheet: +200 (Cash), ‐50 (Net Fixed Asset), +150 (Ret. Earnings)
Income Statement: +150 (Income) Due To Net Gain On Sale 
Statement of Cash Flows: +200 (Cash From Investing Activities) 

How Do Business Activities Affect Financials?  

For Example: 
Company Receives $1M Cash Payment Upon Signing 
A New Long‐Term Supply Agreement. 

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Impact Of Transactions On Financials 

+$1M                                                                                                                    $1M
(Cash)  (Income)         
Statement 
Income 
Of Cash  Statement 
Flows

Balance Sheet: +$1M (Cash), ($1M) (Ret. Earnings)
Income Statement: +$1M (Net Income) 
Statement of Cash Flows: +$1M (Cash From Operating Activities) 

Can We Recognize This Income?

Impact Of Transactions On Financials 

+$1M   $1M $0M                                           

(Cash)                                                       (Non‐Cash Liab)         
Statement 
Income 
Of Cash  Statement 
Flows

Balance Sheet: +$1M (Cash), ($1M) (Non‐Cash Liability)

Income Statement: None
Statement of Cash Flows: +$1M (Cash From Operating Activities)