Accounting Fundamentals Structure of Financial Statements AGEG 489

Accounting Fundamentals Structure of Financial Statements AGEG 489 -689 Spring 2010

Topic Coverage 1. 2. 3. 4. 5. 6. 7. Consolidated balance sheet Consolidated income statement Consolidated cash flow statement Monthly cash flow statement and LOC needs Debt repayment capacity statement Linkages between financial statements Introduction to financial statement analysis

Annual Consolidated Balance Sheet

Basic Structure of the Balance Sheet Assets: Liabilities and Net Worth: Current assets Current liabilities plus Long term assets plus Long term liabilities plus Net worth equals Total assets Often referred to as equity equals Total liabilities and net worth Page 3 in booklet

Balance Sheet Structure

Annual Consolidated Income Statement

Basic Structure of Income Statement Minus Equals Plus Less Equals Minus Equals Cash receipts from product sales Operating and interest expenses Net cash income from operations Gain (loss) on sale of long term assets Cash subsidies received Depreciation allowances Income (loss) before taxes Provision for income taxes Net income Page 4 in booklet

Income Statement Structure

Annual and Monthly Cash Flow Statements

Basic Structure of Cash Flow Statement Cash available (including cash balance) Minus Cash required Equals Cash available less cash required Plus Available savings withdrawals Equals Cash position Plus Net borrowing Minus Other uses of cash Minus Withdrawals of cash to savings Equals Ending cash balance Page 5 in booklet

Cash Flow Statement - 1

Cash Flow Statement -2 Need for draw on an LOC in May and June

Cash Flow Statement -3

Cash Flow Statement -4 Producer drew down an LOC In months of May and June and repaid balance in July

Financial Statement Linkages

Statement Linkages Data from cash flow statement to income statement: 1. Cash receipts from operations 2. Cash operating expenses 3. All other cash items (e. g. , interest payments) Cash flow statement Income statement Balance Sheet

Statement Linkages Data from cash flow statement to balance sheet: 1. Ending cash balance 2. Loan balances (current liability portion vs. remaining balance outstanding) 3. Asset adjustments if capital expenditures are made 4. Additions and withdrawals from savings Cash flow statement Income statement Balance Sheet

Let’s Examine these Links More Closely

Interrelationships Between Financial Statements 2009 Cash Flow Statement 2009 Income Statement Balance Sheet 12/31/09 Sources of cash: Beginning cash balance Cash receipts from product sales Other sources of cash Total sources of cash Cash receipts from product sales Other income Total income Ending cash balance Other current assets Total current assets Cash operating expenses Interest payments Other cash expenses Depreciation Total expenses Machinery and equipment Buildings and improvements Land Total assets Uses of cash: Cash operating expenses Interest payments Principal payments Capital expenditures Withdrawals of cash Other selected uses of cash Ending cash balance Total uses of cash Basic structure: Total sources = total uses Net income from operations Allowance for taxes Net income Basic structure: EBIT = total income – total expenses + interest payments Accounts payable Current loan payment Allowance for taxes Other current liabilities Total current liabilities Remaining balance on loans Total liabilities Equity Other statements and schedules: Statement of Change in Owner Equity Depreciable asset schedules Basic Structure: Equity = total assets – total Liabilities Equity = Retained net Income + asset revaluations

Interrelationships Between Financial Statements 2009 Cash Flow Statement 2009 Income Statement Balance Sheet 12/31/09 Sources of cash: Beginning cash balance Cash receipts from product sales Other sources of cash Total sources of cash Cash receipts from product sales Other income Total income Ending cash balance Other current assets Total current assets Cash operating expenses Interest payments Other cash expenses Depreciation Total expenses Machinery and equipment Buildings and improvements Land Total assets Uses of cash: Cash operating expenses Interest payments Principal payments Capital expenditures Withdrawals of cash Other selected uses of cash Ending cash balance Total uses of cash Basic structure: Total sources = total uses Net income from operations Allowance for taxes Net income Basic structure: EBIT = total income – total expenses + interest payments Accounts payable Current loan payment Allowance for taxes Other current liabilities Total current liabilities Remaining balance on loans Total liabilities Equity Other statements and schedules: Statement of Change in Owner Equity Depreciable asset schedules Basic Structure: Equity = total assets – total liabilities Equity = Retained net Income + asset revaluations

Interrelationships Between Financial Statements 2009 Cash Flow Statement 2009 Income Statement Balance Sheet 12/31/09 Sources of cash: Beginning cash balance Cash receipts from product sales Other sources of cash Total sources of cash Cash receipts from product sales Other income Total income Ending cash balance Other current assets Total current assets Cash operating expenses Interest payments Other cash expenses Depreciation Total expenses Machinery and equipment Buildings and improvements Land Total assets Uses of cash: Cash operating expenses Interest payments Principal payments Capital expenditures Withdrawals of cash Other selected uses of cash Ending cash balance Total uses of cash Basic structure: Total sources = total uses Net income from operations Allowance for taxes Net income Basic structure: EBIT = total income – total expenses + interest payments Accounts payable Current loan payment Allowance for taxes Other current liabilities Total current liabilities Remaining balance on loans Total liabilities Equity Other statements and schedules: Statement of Change in Owner Equity Depreciable asset schedules Basic Structure: Equity = total assets – total Liabilities Equity = Retained net Income + asset revaluations