(1) Consolidated Statement of Income ASSETS (4) Consolidated Statement of Cash Flows Cash payments for Other Expenses

Operating Revenues
Revenue from services
Current Assets
Cash and cash equivalents
Cash flows from operating activities:
Net income
¿ Increase∈Prepaid Expenses
Sales revenue Short-term investments Adjustments to reconcile net income to net cash + Decrease∈Accrued Liabilities
Less: Credit Card Discount Inventories provided by Operating Activities:
Less: Sales Discount Supplies Depreciation and amortization (expense) (+) Definitions
Less: Sales Returns & Allowances Accounts receivable Changes in assets and liabilities: The Balance Sheet is a statement of financial position
Total revenues Less: Allowance for doubtful account (Decrease) Accounts receivable that reports dollar amounts assets, liabilities, and SE
Operating Expenses Short-term notes receivable (Decrease) Inventory at a specific point in time
Cost of goods sold Prepaid expenses (Decrease) Prepaid expense The Income Statement is a statement of operations
Salaries expense Total current assets (Decrease) Gains that reports revenues, expenses, and net income for a
Rent expense Properties, plants & equipment (Increase) Accounts payable stated period of time.
Advertising expense Less: Accumulated depreciation (Increase) Accrued expenses Statement of Retained Earnings explains changes
General and administrative expenses Goodwill (Increase) Losses to the retained earnings balance that occurred during
Depreciation expense Long-term investments Interest expense (-) the reporting period.
Other operating expenses Long-term notes receivable Deduct if there’s an increase in Assets The Statement of Cash Flows reports inflows and
Total expenses Intangibles Add if there’s an increase in Liabilites outflows of cash for a stated period of time.
Non-current deferred income taxes Net cash provided (used) by operating activities A Trial Balance is a list of ALL accounts with their
Operating Income
Total assets Cash flows for investing activities: balances to check on the equality of debits and credits
Other Items
Investment income Purchase of PPE
LIABILITIES AND SHAREHOLDERS’ EQUITY Proceeds from disposal of PPE Revenue Principle states that revenues are
Interest expense Current Liabilities: Purchase of short-term investments recognized when 1) delivery has occurred; 2) There is
Loss on PPE sold Accounts payable Proceeds from short-term investments persuasive evidence of an arrangement for customer
Income before Income Taxes Dividends payable Sale of marketable securities payment; 3) The price is fixed or determinable; 4)
Income tax expense Accrued expenses payable
Net cash provided (used) by investing activities Collection is reasonably assured.
Net Income Unearned revenue The Matching Principle requires that expenses be
Earnings per Share Short-term notes payable Cash flows from financing activities:
recorded when incurred in earning revenue.
Total current liabilities Borrowings under line of credit
(2) Consolidated Statement of SE Non-current liabilities Payment on long-term debt
Managers’ Choice of Inventory Methods
Deferred lease credits Payment of dividends
Contribute Retained Total 1) Net income effects (managers prefer to report
Deferred taxes Purchase of treasury stock
d Capital Earnings SE higher earnings for the companies).
Non-current accrued income taxes Proceeds from issuance of stock
Beginning, 2) Income tax effects (managers prefer to pay the
$0 $0 $0 Long-term notes payable Net cash provided (used) by financing activities least amount of taxes allowed by law as late as
date
Total non-current liabilities Net change in cash & cash equivalents: possible – the least-latest rule).
Additional
X X Total liabilities Cash & cash equivalents at beginning of period LIFO Conformity Rule: If LIFO is used on the income
contributions
Shareholders’ equity Cash & cash equivalents at end of period tax return, it must also be used to calculate inventory
Net Income Y Y Contributed capital and cost of goods sold for the financial statements.
Dividends Preferred stock Indirect Method: When unit costs are rising, LIFO produces lower
(Z) (Z) Common stock income and a lower inventory valuation than FIFO.
declared Net Income
Treasury stock Add: Depreciation Expense First-In, First-Out assumes that the earliest
Ending, date X Y −Z X +Y −Z Retained earnings Decrease in Accounts Receivables purchased goods are sold first.
Allowance for Doubtful Accounts Total shareholders’ equity Decrease in Inventories Last-In, First-Out assumes that the most recently
| Beginning balance Total liabilities and shareholders’ equity Increase in Accounts Payable purchased units are sold first.
Write-offs | Bad debt expense Increase in Accrued Expenses Payable Average Cost method uses the weighted average
| Ending balance Non-operating Losses unit cost of the goods available for sale for both cost
Determine Bad Debt Expense Net Cash provided (used) by Operating Activities of goods sold and ending inventory.
Accounts Receivable 1) Use Aging Method to compute Allowance
Beginning balance | Write-offs Profitability is a primary measure of overall success
Net Sales | Cash collections for Bad Debts, x Direct Method:
Cash receipts from customers of a company. Several tests of profitability focus on
Ending balance | 2) Difference between x and Beginning measuring the adequacy of income by comparing it to
¿ Sales Revenue−Increase∈ AR other items reported on the financial statements.
Balance of Allowance for Bad Debts is Bad Cash payments to suppliers Liquidity refers to a company’s ability to meet its
Debt Expense
3) Net AR is AR less Allowance for Bad Debt
¿ Purchase+ BB AP−EB AP maturing debts. Tests of liquidity focus on the
Cash payments for salary relationship of current assets and current liabilities.
Solvency refers to a company’s ability to meet its
¿ Increase∈ prepaid salary expense long-term obligations. Tests of solvency are measures
−Decrease∈ prepaid salary expense of a company’s ability to meet these obligations.
Market Tests relate the current price per share of
−Increase ∈accrued salary expense stock to the return that accrues to investors.

(3) Consolidated Balance Sheet + Decrease∈accrued salary expense Stockholders can: