7 Financial Statements

Transcription

1 Chapter 7 Financial Statements LEARNING OBJECTIVES 1. Restore data from Exercise 6-2. This backup was made on page Explore Sage 50 s Help feature. 3. Print the financial statements. 4. Use drill down to go from the income statement to the general ledger, then to the original entry window. 5. Complete Bellwether Garden Supply project online at > Student Edition link. 6. Make an optional backup of Chapter 7, save one Excel file, and save six PDF files. (The Exercise 6-2.ptb backup includes the data needed for Chapter 7.) FINANCIAL STATEMENTS In Chapters 1 through 6, you explored the sample company, Bellwether Garden Supply. You learned how Sage s user interface works and how to navigate the software. In Chapters 1 through 6, you also journalized and posted various types of transactions. Beginning with Chapter 9, you learn how to use these features to set up service businesses from scratch. In Chapter 7, you look at the financial statements. Once journal entries are recorded and posted, financial statements are calculated. Since business managers and owners have the primary responsibility for the organization, they depend on accounting information in the form of financial statements to understand what is happening. The financial statements reflect the current month and year-to-date amounts. 205

2 206 Chapter 7 In this chapter, six financial statements are printed. 1. Balance Sheet. 2. Gross Profit by Departments. 3. Income Statement. 4. Statement of Cash Flow. 5. Statement of Retained Earnings. 6. Statement of Changes in Financial Position. Even though current accounting standards do not require a SCFP, Sage 50 includes it. (Refer to Read Me on page 221.) Balance Sheet A balance sheet is a list of assets, liabilities, and capital of a business entity as of a specific date, such as the last day of an accounting period or the last day of the year. Each financial statement may be modified to fit your needs. Sage 50 includes a Design icon for that purpose. Later in this chapter, you learn about how to use the Help feature to design financial statements. In Chapter 16, Customizing Forms, you learn more about modifying Sage 50 s standard forms. Gross Profit by Departments A departmentalized accounting system provides information that management can use to evaluate the profitability or cost effectiveness of a department s activities. The Gross Profit by Departments financial statement is a custom report designed for Bellwether that details each department s year-to-date gross profit as of the current month. Some of Bellwether s chart of account numbers have a dash, then an AV or a BK. For example, Account No AV, Sales - Aviary; and Account No BK, Sales - Books show the departmental designation.

3 Financial Statements 207 Sage 50 includes a feature called masking which allows departmental organization. Custom forms can be designed to accommodate a departmentalized accounting system. The wrench [ ] to the left of Bellwether s financial statements indicates custom-designed forms. Income Statement The income statement is a summary of the revenues and expenses a company accrues over a period of time, such as an accounting period or a year. Only revenue and expense accounts are displayed on the income statement. Net income is computed by subtracting total expenses from total revenues. Net income results when revenues exceed expenses. An excess of expenses over revenues results in a net loss. Bellwether s net loss for the current month, March 1 through March 31, 2017, is $2, A net loss is indicated on the income statement with parenthesis ($2,523.21). Bellwether s year-to-date net income is $25, On page 218, the Income Statement is shown. In addition to dollar figures, the income statement also includes percentage-ofrevenue columns for the current month and year to date. The percentages shown for each expense, total expenses, and net income (or net loss) indicate the relationship of each item to total revenues. Statement of Cash Flow The cash flow from operations is roughly the same as income from operations plus depreciation, depletion, and adjusted for any other operating transactions that had no effect on cash during the period. The statement of cash flow also reports cash transactions associated with the purchase or sale of fixed assets (Investing Activities) and cash paid to or received from creditors and owners (Financing Activities).

4 208 Chapter 7 The statement of cash flow provides the answers to three questions: 1. Where did cash receipts come from? 2. What were cash payments used for? 3. What was the overall change in cash? Statement of Retained Earnings The Statement of Retained Earnings shows beginning and ending retained earnings amounts, adjustments made to retained earnings within the report period, and the detail for all Equity-gets closed accounts. The retained earnings balance is the cumulative, lifetime earnings of the company less its cumulative losses and dividends. Statement of Changes in Financial Position The statement of changes in financial position describes changes in a company s financial position that may not be obvious from other financial statements. The statement of changes shows the change in working capital, assets, and liabilities for a given period of time. (Sage 50 includes this report. For more information, refer to Read me, page 221.) Interrelationship of Financial Statements The financial statements work together. The net income (or net loss) from the income statement is reported on the balance sheet s capital section. The net income or net loss is used to update the balance sheet s capital amount: Capital Beginning of the Year Net Loss (or + Net Income) = Total Capital. On the statement of retained earnings, the Ending Retained Earnings balance is $214, On the balance sheet, if you add the net income $25, to the balance sheet s retained earnings amount, $189,037.60, the result is

5 Financial Statements 209 $214, This amount, $214,616.82, is the same as the Ending Retained Earnings balance on the Statement of Retained Earnings. The total of all the cash accounts on the Balance Sheet (Petty Cash, Cash on Hand, Regular Checking Account, Payroll Checking Account, Savings Account, and Money-Market Fund) is shown as the Cash Balance at End of Period on the statement of cash flow, $32, The statement of cash flow uses information from both the balance sheet and income statement. The statement of changes in financial position uses information from the income statement and balance sheet. No single financial statement tells the entire story. The income statement indicates how much revenue a business has earned during a specific period of time, but it says nothing about how much of that amount has or has not been received in cash. For information about cash and accounts receivable, look at the balance sheet and statement of cash flow. GETTING STARTED 1. Start Sage 50. Open the sample company, Bellwether Garden Supply - Student Name. 2. If necessary, restore data from the Exercise 6-2 backup. (This backup was made on page 202.) Restoring overwrites or replaces an existing file. To make sure you are starting in the appropriate place in the data (Exercise 6-2.ptb backup) check the Job Profitability Report. The results for Franklin Botanical Gardens are shown below.

6 210 Chapter 7 USING SAGE 50 S HELP FEATURE In Chapter 5 on pages you used the Help feature to access sample charts of accounts. Later in Chapter 5, on pages , you used Sage 50 s Help feature to learn about security and internal controls. In this chapter, you learn how to access Sage 50 s Help feature to learn more about financial statements. 1. From the menu bar, click Help > Help. The Sage 50 Help window displays. If necessary, click on the Index tab. Select the Index tab 2. Type balance sheet in the Type in the keyword to find field. Observe that Balance Sheet is highlighted. 3. Click. Read the information in the right pane. In the Learn more section, link to additional information.

7 Financial Statements If necessary, on the Sage 50 Help title bar click to enlarge the Sage 50 Help window, or scroll down. Link to How Transactions Affect the Balance Sheet. In the Learn more area, link to Balance Sheet Format, Debit and Credit, and Measure Income. 5. Click on the Sage 50 Help title bar to close the window.

8 212 Chapter 7 DISPLAYING THE FINANCIAL STATEMENTS You have already used the Reports & Forms menu to print reports. In the steps that follow you use the Business Status Navigation Center to print financial statements. 1. From the Navigation Bar, click. In the Find a Report area's Category field > select Financial Statements. 2. In the Report field > select <Standard> Balance Sheet. 3. Click. The <Standard> Balance Sheet appears. Standard refers to statements that Sage 50 has already set up. As noted in the Help window, Sage 50 has a feature that allows you to design financial statements to fit your company s needs. For example, if you select Financial Statements from the Reports & Forms menu, reports with a wrench [ ] next to them are customized forms. Compare your balance sheet with the one shown on the next two pages. If you printed the report, observe that a line at the bottom of the reports says Unaudited For Management Purposes Only.

9 Financial Statements 213

10 214 Chapter 7 Follow these steps to display the Gross Profit by Departments financial statement for the current period. 1. Close the Balance Sheet. In the Find a Report area of the Business Status Navigation Center, the Category field shows Financial Statements. In the Report field, select Gross Profit by Departments. 2. Click. The Departmental Gross Profit Totals report appears. Compare yours with the one shown on the next page.

11 Financial Statements 215 The Departmental Gross Profit Totals report lists the departmental gross profit totals for the following departments: Aviary, Books, and Equipment. 3. Close the Departmental Gross Profit Totals window. Departmental Masking The Departmental Gross Profit report shown above is separated into three departments: Aviary, Books, and Equipment. A feature included in Sage 50 called masking allows you to departmentalize financial statements. Masking is the ability to limit information on the report to a single division, department, location, or type code. For masking, account numbers could be set up like this. When you print or display a report, you can filter the report using wildcard characters. In this example, you would type *****01 to include all departments ending in 01. You would type ****M** to show only main branch numbers on the report. You could type 10***** to find all assettype accounts for all branches and departments (assuming your asset accounts all begin with 10).

12 216 Chapter 7 Wildcards make it easy to select a range of account numbers. In Sage 50, the only valid wildcard character is an asterisk. An asterisk represents any number of characters. You can filter or mask the information that appears on certain general ledger reports. This is done by the use of 15 characters that are allowed in the Account ID field of your general ledger accounts. To see the account masking option, do this. 1. Select Reports & Forms > General Ledger > highlight Chart of Accounts. 2. On the toolbar, click. 3. In the Select a filter area, highlight Department Mask. 4. In the Select an option area, select Use wildcards. Type 10*****. (Hint: After 10, type 5 asterisks.) 5. Click. The Chart of Accounts appears with account numbers starting with 10.

13 Financial Statements Close the Chart of Accounts and the Select a Report or Form window. Bellwether Garden Supply masks departments by adding a suffix for the department name AV for Aviary, BK for Books, etc. Follow these steps to display the income statement: 1. In the Find a Report area of the Business Status Navigation Center, the Category field shows Financial Statements. In the Report field > select <Standard> Income Stmnt. 2. Click. When the Income Statement displays > click, then uncheck Show Zero Amounts >. How to fix? What if your financial statements do not agree? Suggestions follow. Determine the difference in the amounts. Is the difference the amount of an entry? Display the Audit Trail report for the month(s)/year you have been completing work. A partial Audit Trail Report is shown in Chapter 5, page 185. Verify amounts. Is an entry missing or has an entry been recorded twice? If needed, drill down to the original entry. You may also find it useful to display the General Ledger Trial Balance and drill down to specific accounts. If needed, restore an earlier backup file and then continue from that point. Refer to the chart on pages 2-3 for the backups made in Chapters 1-7. Display the financial statement again and compare to textbook illustration. The income statement is shown on the next page.

14 218 Chapter 7

15 Financial Statements 219 Drill Down from the Income Statement to Original Entry Follow these steps to follow an account balance from the income statement, to the general ledger, then to the original entry window. This is called drill down. 1. The income statement should be displayed. Place your cursor over 7,172.71, Sales Aviary. Observe that the cursor becomes a magnifying glass icon with a Z in the middle. (Z is an abbreviation for zoom). Double-click with your left mouse button. 2. The General Ledger Account AV, Sales - Aviary, appears. From the general ledger you can drill down to the Receive Money window. For example, double click on the 3/5/2017 Cash Receipts Journal (CRJ) entry for $ This takes you to the Receive Money window. The original entry for 4 Thistle Bird Seed Mix-6 lb. (AVRY-10140) is shown (19.99 x 4 = 79.96). Close the Receive Money window to go back to the General Ledger Account No AV. 4. Drill down from one of the Sales Journal (SJ) entries. The Sales/Invoicing window appears. 5. When you are through using drill down, close the Sales/Invoicing window, General Ledger, and Income Statement windows. Follow these steps to display the Statement of Cash Flow. 1. In the Find a Report area of the Business Status Navigation Center, the Category field shows Financial Statements. In the Report field, select <Standard> Cash Flow >.

16 220 Chapter 7 2. From the Statement of Cash Flow window, click > uncheck Show Zero Amounts >. If printed, observe that the bottom of the report says "Unaudited - For Internal Use Only."

17 Financial Statements Close the Statement of Cash Flow. Follow these steps to display the Statement of Retained Earnings: 1. In the Report field, select <Standard> Retained Earnings. 2. Click. When the Statement of Retained Earnings displays > click > uncheck Show Zero Amounts >. The Statement of Retained Earnings appears. 3. Close the Statement of Retained Earnings. Follow the steps on the next page to print the Statement of Changes in Financial Position. Read Me: Statement of Changes in Financial Position Sage 50 includes the Statement of Changes in Financial Position even though current accounting standards require that a statement of cash flow is needed as part of a full set of financial statements in place of a statement of changes in financial position.

18 222 Chapter 7 1. In the Report field, select <Standard> Stmnt Changes >. Select the option to uncheck Show Zero amounts.

19 Financial Statements 223 How to Fix? I do NOT have a printer. What should I do? 1. Display the financial statement > select. In the Name field, click on the down-arrow. 2. Select Adobe PDF or Microsoft XPS Document Writer. 3. Save the file to your USB drive. 4. Verify your displayed reports with those shown on pages If needed, the PDF or XPS file can be ed to your instructor. When selecting an Adobe PDF or XPS file, no printer is required. 2. If instructed, print or save. Close all windows. BACKING UP CHAPTER 7 DATA (Optional Backup) You have not added any new data in Chapter 7. If you would prefer to make a backup, the suggested file name is Chapter 7.ptb. Detailed steps for backing up data are shown on pages Backing up saves your data to that point in your work. Each time you back up, use a different file name; for example, the suggested file name at this point is Chapter 7.ptb. (Sage 50 automatically adds the file extension.ptb to backups.) Using a unique file name allows you to restore at different points in the data. EXPORT FINANCIAL STATEMENTS TO EXCEL Follow these steps to have separate sheets for each financial statement on one Excel workbook.

20 224 Chapter 7 1. Display the <Standard> Balance Sheet > click. 2. The Copy Report to Excel window appears. The default File Option is Create a new Microsoft Excel workbook. The Default Report header option is Show header in Excel worksheet. If necessary, make these selections. 3. Click. The Balance Sheet appears as an Excel workbook. 4. Save. Use the file name Chapter 7_Financial Statements.xlsx. Minimize Excel. 5. Close Sage 50 s Balance Sheet.

21 Financial Statements Display the <Standard> Income Statement. From the displayed Income Statement, click. 7. On the Copy Report to Excel window, select Add a new worksheet to an Existing Microsoft Excel workbook. Then, Browse to the location of the saved file (Chapter 7_Financial Statements.xlsx). Double-click on the Chapter 7_Financial Statements file (or highlight it and click <Open>). 8. Click. Maximize Excel. (From the taskbar, click on the Microsoft Excel button.) Observe that the Excel file shows two sheets Balance Sheet and Income Stmnt. (Hint: You may need to save each sheet, then exit Excel before exporting the next financial statement.) 9. Save. Add the following financial statements to the Excel file: Gross Profit by Departments, Statement of Cash Flow, Retained Earnings Statement, and Statement of Changes in Financial Position. When you are finished, the Excel file should have 6 sheets: Balance Sheet, Income Stmnt, Gross Profit by Departments, Cash Flow, Retained Earnings, Stmnt Changes. Check your figures: Total Liabilities & Capital $501, Year to Date Gross Profit 203,498.51

22 226 Chapter 7 Year-to-date Net Income $25, Year-to-date Net Increase in Cash $4, Ending Retained Earnings $214, Save. Exit Excel. 11. Save the financial statements as PDF files. Use the financial statement's name, then save. For example, use the file name Chapter 7_Balance Sheet.pdf, Chapter 7_Income Statement, etc. ONLINE LEARNING CENTER Complete the following end-of-chapter activities online at > Student Edition > Chapter Interactive Multiple-Choice and True/False questions. 2. Going to the Net exercise: Access the article How to Value Stocks: How to Read a Balance Sheet. 3. QA Templates: 10 true/make true questions and three analysis questions. 4. Assessment Rubric: Review journals, navigation centers, modules, and task windows. 5. Listen to narrated PowerPoint slides. 6. Bellwether Garden Supply Project. The OLC also includes links to the Appendixes: Appendix A: Troubleshooting (textbook and OLC) Appendix C: Review of Accounting Principles (OLC Student Edition) Appendix D: Glossary of Terms (OLC Student Edition)

23 Financial Statements 227 Exercise 7-1: Answer the following questions about the balance sheet and income statement: 1. The total assets are: 2. The total capital is: 3. Indicate the amount of the net income or (net loss) for the month of March: 4. The current month s gross profit is: 5. The current month s total expenses are: Exercise 7-2: Answer the following questions about the statement of cash flow and the statement of retained earnings: 1. The current month s cash balance at the beginning of the period is: 2. The year-to-date s cash balance at the beginning of the period is: 3. The cash balance at end of period for the current month is: 4. The beginning Retained Earnings balance is: 5. The ending Retained Earnings balance is: BELLWETHER GARDEN SUPPLY PROJECT To answer questions about Bellwether Garden Supply, go online to > Student Edition > link to Bellwether Garden Supply Project. In this project, you examine Bellwether's transactions, reports, and internal controls. The project includes comparing controlling account balances to the subsidiary ledgers and describing why some balances may differ.

24 228 Chapter 7 CHAPTER 7 INDEX Backing up Chapter 7 data Balance sheet , 213 Bellwether Garden Supply project Check your figures Departmental masking Displaying the financial statements Drill down from the income statements to original entry Exercise Exercise Export financial statements to Excel Financial statements Getting started Gross profit by departments , 215 How to fix , 223 Income statement , 218 Interrelationship of financial statements Learning objectives Online learning center Net income Net loss Read me Statement of cash flow , 220 Statement of changes in financial position , 222 Statement of retained earnings , 221 Using Sage 50's Help feature