Scenic Video Transcript Dividends, Closing Entries, and Record-Keeping and Reporting Map Topics. Entries: o Dividends entries- Declaring and paying

Income Statements» What s Behind?» Statements of Changes in Owners Equity» Scenic Video www.navigatingaccounting.com/video/scenic-dividends-closing-entries-and-record-keeping-and-reporting-map Scenic Video Transcript Dividends, Closing Entries, and Record-Keeping and Reporting Map Topics Entries: o Dividends entries- Declaring and paying o Closing entries Record Keeping and Reporting (R&R) Map: o Creating statements- Balance sheets, income statements, and statements of changes in owners equity o Mapping entries into statements- Stock issuance, inventory purchase, and depreciation examples Take-aways Transcript Introduction Welcome to the Dividends, Closing Entries, and Record-Keeping and Reporting Map scenic route where you're going to learn how to record entries behind numbers reported in the statement of changes in owners' equity, how to create the statement of changes in owners equity from the balance sheet equation matrix, and how to use the Record-Keeping and Reporting Map to determine how entries affect the three financial statements we've studied thus far. Entries, R&R map, creating statements, mapping entries into statements. Well, let's get started. ENTRIES Here is the statement of changes in owners' equity. You might recall from a prior video that profits are in retained earnings, and the question is how do they get there? Well, that's the entry we're going to record. We're going to get profits into retained earnings. We're also going to get other comprehensive income into the reserves or accumulated OCI [other comprehensive income]. But first, we're going to do some dividend entries. Dividends you might recall came out of retained earnings and now we're going to look at the entry that takes them out of retained earnings. Closing entries which are the entries that have to do with getting the two components of comprehensive income into the statement of shareholders' equity and dividend entries - there would be two of them - that have to do with how we get dividends out of retained earnings. So let's get started with these entries. You may translate this work into your local language, as long as you credit G. Peter & Carolyn R. Wilson and respect the Creative Commons Attribution-Noncommercial-Share Alike United States license. 1991 2011 NavAcc LLC. www.navigatingaccounting.com

2 DIVIDEND ENTRIES Declaring dividends We begin with a dividend example. On December 15th, 2012, Smartgadgets board of directors declares a $30 per share common stock dividend payable on January 31st, 2013. Now, this requires a little bit of explanation. What happens is the board of directors will get together and they will declare a dividend. Now at that point, the company becomes legally obligated to pay the dividend and that's really important because remember, obligations give rise to liabilities. But the dividend isn't paid on that date. It's generally paid at a later date and that date is declared also when the dividend is declared. So the company declares the dividend on this date, the 15th of December, and the company is going to pay the dividend on January 31st. Smartgadgets has 1,000 shares of common stock and each share is going to get $30 so the total is $30,000. So that's the fact item we have. Now, what we want to do is record the entry when the dividend is declared, and the important thing to understand here is when the board of directors declares the dividend, the company is legally obligated to pay the dividend and that's going to lead us to record a liability. So our four questions that we've been asking throughout the chapter: Should an asset be recognized? No, the company didn't receive any benefits. Should an asset be derecognized? No, we've yet to pay the dividend. Should a liability be recognized? Well, yes, that's the obligation that we have. That's going to be $30,000. So net assets is going down by $30,000; and therefore, owners' equity is going down by $30,000 because we're not derecognizing a liability. What does this mean? What does our change map say? Well, the first thing you ask is "Do you have a transaction with owners?" Up till now, we've been saying, "No. Nope. Let's go to the other part, comprehensive income. But now we do have a transaction with owners. Now we divide that into two parts: contributions and distributions, and of course this is a distribution to the owners. Now we have yet to pay it so we're going to have to record it as a liability and then we'll pay it at the later date. Here is exactly what I said. Change map was down into transactions with owners and it's a distribution to owners. Now let's record the entry. So we have assets equal liabilities plus owners' equities. We know we have a liability. We know we have an owners' equity. So let's go look for those accounts. In the liabilities, let's check. Accounts payable? Well, it is a payable, but nope, we can do better than that. Accrued liabilities? No, we're not accruing the expense. Deferred revenue? No. Ah, dividends payable right there. That's going to be a positively signed account because it increases the liabilities. How about owners' equity? What account in owners' equity is affected by dividend declaration? Correct - retained earnings. So we have two positively signed accounts, and now what happens to them? Well, we know we decrease retained earnings when we have a dividend, and so the declaration of the dividend is going to decrease retained earnings by $30,000 and it's going to increase the liability by $30,000. So there's our balance sheet equation matrix.

3 What does a journal entry look like? Retained earnings is a credit account but that credit account decreased so that's a debit, and dividends payable is a credit account but it increased so that's our credit. Debits equal credits, there's your entry. Paying Dividends Now we go to where we pay the dividend. Of course all we're doing is paying off an obligation. There's nothing new here. So what happens? Well, should an asset be recognized? We're paying a dividend so there's no asset recognized. Should an asset be derecognized? Yes, cash. We're going to use cash to pay off this obligation that we have so that's going to go down by $30,000 in assets. How about liabilities? Yup, liabilities are going to be de-recognized, not recognized because we recognize the liability when we declared the dividend. Now we're going to meet that obligation. So our liabilities go down by $30,000 but that's negative a negative. What's the overall effect on net assets? Zero. So there's no change in owners' equity. Let's record that entry. Assets, liabilities plus owners' equity. We know our liability is going to be dividends payable and that's a positive account, and this is going to be decreased. We know over here we have cash, positive account, and it's going to be decreased both for $30,000. There's your balance sheet equation mini matrix and everything balances. Now, what does all this mean from an owner's perspective? Well, the owner is getting cash from the company so essentially a return on the investments that the owner has made up till now. That pulls down the assets and in this case pulls down the liabilities, and of course the liability was an intermediate stage. What's really gone down in the two entries is owners' equity has gone down. So overall, when we look at these two entries, cash goes down and owner' equity goes down. Now you might be thinking, "Well, how can the owners' equity go down?" Essentially because the shareholders have earned a return on their investment, so that was built up and what's left in there is the retained earnings. So it's true that their shares were worth more before the dividend was declared. That is, their claim was worth more. But now that they've gotten the cash, well, they have both the claim which is worth less but they're holding the cash in their hand. And of course the understanding here is that the company did better to distribute this cash to the owners than to retain it and to continue to grow their company. What does a journal entry look like? Well, again, pretty straightforward. Cash is a debit account but cash decreased so there is our credit. Dividends payable is a credit account but it decreased so there is our debit. Closing Entries Now we want to look at closing entries. Now these are very important, and we record them during the closing period. You might recall that when we went behind the numbers in the income statements section, we looked at the pre-close trial balance where we added up all the numbers and ended up with positive balances in our income accounts here for example. So now what do we do? Well, now here are our goals. We've got to get these income accounts to zero ending balances. Why? These temporary accounts must start the next period with zero balances to ensure they only capture next period's performance. Otherwise, you carry over performance from this period.

4 So we do that with a couple of closing entries. Now, these could be combined into one entry, but I'm going to break it down to two entries for you. Now, the first thing we're going to do is we're going to balance the equation by adding net income to the income summary account. Let me explain. Here is the entry we're going to be focusing on right here. What does it do? Well, the balance sheet equation equal sign is somewhere way over here. Remember, here at the permanent owners' equity accounts we got all the liabilities over here and just looking at a very small part of the matrix here. Now, we're going to subtract from the revenue account the amount that s in the revenue account. That will get us the zero balance at the end of the year and the same for every other income account. Well, all of this is what we made our income statement from. So when you look at that, that's going to give us how much income we have. Now it turns out income for this year was $89 million. That's what we got when we made our income statement. Now, we have essentially taken away $89 from all those accounts in total. That is if you went through all the mathematics of plus a minus, minus a minus, all the way through, well, what you get is negative $89. Why? Well, if it added up to $89 when we made our income statement and we're subtracting it all, it's got to be negative $89. Remember now though, we want to keep this line in balance. So if we've taken $89 away by emptying the income accounts, we're going to add $89 back into this account called income summary. Think about the word - income summary, and that's where income will always be. Everything is in balance. We took $89 away. We added $89. Now, what we have effectively done is we've guaranteed getting zero balances in all these income accounts but we have created another problem because if we stopped right now we'd have $89 in this account right here. So we wouldn't have emptied out all the temporary accounts because income summary is a temporary account. Essentially what we've done is consolidate all the numbers that are in the income accounts into this income summary account. Now we're going to empty the income summary account in the next step. There's the entry we were just focused on where we put everything into income summary. Now we're going to remove everything from income summary and just move it on over to a permanent account - retained earnings. And now you know how net income gets into retained earnings. Now remember, that's only one component of comprehensive income. Now some of you are probably saying, "Well, we could have done this all in one step. We didn't really need the income summary account," and of course that's true. Instead of putting $89 in and taking $89 out, well, we could have gone straight over and put this up one row up, and then one entry we would have cleaned out the income accounts and put it all into retained earnings and that's a perfectly acceptable way to do this, either alternative. Some people prefer one; some people prefer the other. Again though, what's really important here is we are looking at the statement of shareholders' equity. We've seen up till now that net income went into retained earnings and now you know how it happens. You clean out all the income accounts. You essentially transfer their cumulative value into retained earnings and that's called net income.

Now, what we want to do is close the comprehensive income accounts, and here we are going to do it in one step. We had $24 trial balance pre-close and what we're going to do is clean that out, take out the $24, put it over here into the reserves or into accumulated other comprehensive income. Remember those are synonyms - reserves and accumulated other comprehensive income. So here we've done it all in one step. Now in practice there would be several accounts over here for accumulated other comprehensive income. One, say, for foreign currencies, one for derivatives, and we would have several income accounts and we'd close them one at a time into each of these accounts, but that's for the later chapters. Now you know how other comprehensive income gets into the statement of shareholders' equity. You know how net income gets into the statement of shareholders' equity. That all happens through closing entries and you know how dividends come out of retained earnings. Well, those are the key entries behind the statement of shareholders' equity. Now that all the entries are recorded, we can form our final balance and we're going to need that. Well, that's easy. See there's pre-close trial balance say for our share capital is going to be the same as the final balance because we didn't do anything to share our capital during the closing entries, and that will be true by the way for all the liabilities and all the assets. Their balances won't change but retained earnings will change as well as the reserve because we close numbers into them. That's absolutely critical to see. Often, what students do is they try to create a balance sheet from their pre-close trial balance row, but if you don't do the closing entries, you will never get your balance sheet to balance, it's absolutely guaranteed because you've got to move all these numbers that we recorded during the period over into the permanent accounts. R&R MAP CREATING STATEMENTS Balance Sheet Now we're ready to create some statements, so we're going to begin with the balance sheet and then we'll do the income statement and then we'd do the statement of shareholders' equity, and we're going to do that from the balance sheet equation matrix. Now, keep in mind this is a conceptual exercise. We're trying to teach you how statements are created from the matrix. You'll do this for small matrices for the fictitious companies that we have put together in the exercises. But ultimately, you're going to have to see this in your mind's eye. Why? Well, take a company like General Electric. Their controller announced in his speech that they have 100 billion transactions every year, 100 billion. That means 100 billion rows. And they have thousands and thousands of accounts which means thousands and thousands of columns. So think about how big that matrix is say 10,000 or 20,000 multiplied by 100 billion. Clearly, if we're trying to get that on one page, the font would be small. So we're not going to be using the matrix to create statements after these first few chapters. What we're going to be doing instead is using it to represent concepts and that's going to be powerful and you're going to start to see how that works later in this video. 5

For right now, how do we create a balance sheet? Well, remember, we've managed to close out all the accounts over here. They have zero balances on the income accounts. So what we have to do to create the balance sheet is straightforward. We get the beginning balances from the very first row in the matrix but only for the permanent accounts. There is your beginning balances going down into the balance sheet, and we get the ending balances from the last row going into the balance sheet. What happened in between? All these events, which explains the changes in the balance sheet. Income Statements How about the income statement? We said in an earlier video in this chapter that to get the income statement you focused on the pre-close trial balance row and you just picked the numbers up and we built the income statement. Now we have the balance sheet, we have the income statement. Statement of Changes in Shareholders Equity How do we get the statement of changes in shareholders' equity? Very easy. First of all, let's look at what we're going to be focusing on. The statement of changes in owners' equity, remember, has several panels. Here's panel and here's a panel. We're going to go down the bottom panel and that's what we're going to be creating right now. You might recall it begins with beginning balances in the owners' equity accounts - share capital, retained earnings, reserves, and the total. Beginning balances at the start of this period and here is at the end of the period which in this case is the year. So where do those balances come from? Right off the balance sheet. How about with regard to the matrix? Beginning balances are up here but we're over here in the permanent owners' equity account so they're right there. There's the ending balances down there coming right off the matrix, and all of this stuff in between explains the change and here are the events over here. So all we do is we go down the matrix, and every time we see an entry that affects owners' equity, well, we'd pick that entry up and move it down below into the statement of changes in owners' equity. All the other entries, well, they have no effect over here. So it's really simple to create the statement from the balance sheet equation matrix. You get the beginning balances, the ending balances, and then all the changes by looking only at those rows where there was an effect on owners' equity. MAPPING ENTRIES INTO STATEMENTS Stock Issuance So now what I want to do is use the R&R map to map entries into the statements. This is a powerful, powerful tool. Now we're going to be taking the share capital and showing how it maps through the statements, but I first want to explain how this is going to help you throughout your career. Now suppose for example that you're working for a company and a transaction takes place and the company issues shares of stock. You might be wondering, "How is that going to affect our financial statements, our balance sheet, our income statement, our cash flow statement, our statement of shareholders' equity? How are they going to be affected by this transaction?" Well, you read about a similar transaction taking place in another company in the Financial Times say. How were the financial statements affected? Well, that's really important. As a matter of fact, the fundamental reason we're teaching how to record entries 6

unless you're going to become an accountant is to do this exercise and we're going to show you how the map is going to help you do that. There's another way in which the map can help you though. But remember, you're not going to see the balance sheet equation matrix as an outsider. You're going to see the statements down here. So you're looking at a statement and you see a number on the statement and you ask, "What entries were behind that? How did the numbers get into the statement?" Well, understanding the R&R map will help you do that. From now on, as you learn how to record entries, we want you to do something like what we're about to show you here. So we're going to take this entry which we recorded, cash goes up, share capital goes up when we issue stock, and it was $10 and that was the very first event. Now, the fact that you can't see the entry in the matrix is really not all that important. What's important is that we position it roughly where it goes. Now this one we know is the first event we recorded and it's there and it's there. So we could blow this up and you could see that, and I'll in fact do that for you. There it is. Issued share capital for cash, $10. But when you're using the matrix in the future, it won't be important that you do that. See here we ve recorded the 18 entries that we have studied thus far in the book, but going forward, stuff will be in other down here. So there's lots and lots of entries that we're not showing. If we were to show all those entries, well, the matrix gets gigantic. It's in an Excel file, but if you try to show it on one page, you couldn't see it. So here we have our entry and all that's important right now is it increased the assets. Remember, we put $10 into cash, and when we study cash flows in the next chapter, it will be important to know it went into the cash account and it's also really important to know that it went into a permanent owners' equity account, that it's over here going into share capital because you see that's in this pink range. And actually, all you're trying to do is to figure out, did the entry fall into the assets? Into the liabilities? Into the permanent owners' equity or into the temporary income accounts? If you can just locate it in those areas, well, you're going to learn a good deal. Here is why. Any entry that's over here in the assets, right here, is going to flow down into the closing balance. So if you record an entry up here, it's going to affect the closing balances on the balance sheet. Now in particular, the entry we just recorded went into cash so that's going to go right down into the cash ending balance, and that tells us that if we look at cash and cash equivalents on the balance sheet, well, that ending balance was affected by this entry. Was income affected by the entry? Did we affect the income statement at all? No! We didn't record anything over here in an income account. The income statement was created from the pre-close trial balances so anything up here is going to flow down into those pre-close trial balances and then down into the income statement, but we didn't record anything up here for this particular entry. So no way is the income statement affected, and it's really important to understand that. That is, when you are recording an entry, knowing where it goes and where it doesn't go are about equally important. Did it affect the balance sheet? Absolutely. One place on the balance sheet is cash. We've already seen that. Well, what else was affected? Well, it's over here in the pink, right, because there's the entry up there recorded. It's into the pink and that means it's in the 7

permanent owners' equity accounts and that means two things. One, it's definitely going down the balance sheet. It can be right there on the balance sheet and that's going to affect share capital down here. But equally important, because we recorded something into a permanent owners' equity account, it's going to go the statement of shareholders' equity, and in fact, there's the entry right there. Common stock issued: $10. Again, what's important here is not the precise location, not the precise location but the area, the geographic area. What we'll refer to it often as the geography of the balance sheet equation matrix. Where in that geography did we put the entry? And that's going to tell us after a while how it flows down with the statements. Now, at first when you do this it's going to be awkward. But after a while, you're going to see the entire Record-Keeping and Reporting Map, the R&R map. You're going to see that in your mind's eye, and as you record an entry, you're going to ask, "Does it affect the balance sheet? Does it affect the income statement? Does it affect the statement of shareholders' equity? And ultimately, how does it affect the cash flow statement?" So these are really, really important for you to understand no matter what you do. If you're marketing manager, it's going to be important for you to know how your financial statements are affected by the transactions you're involved with. If you're in manufacturing, this is going to be important. If you're a private investor and you're reading the Financial Times, it's going to be important. So this is a critical lesson and this is the payoff for understanding entries. This is a real payoff. So we want to work at it and it's going to look awkward at first. We understand that. But you want to spend a good deal of time with this so let's look at a couple of more examples. Inventory Purchase Now we're going to look at purchasing merchandise for resell. You record inventory: $80 and your record accounts payable for $80. So we bought merchandise on account. Now where does this fall? Well, this happens to be E4 so it's somewhere in here. It's the current assets so it's about there, and it's over here in the liabilities. And again, it really doesn't matter that you get the precise event. As a matter of fact, as I said a while ago, once we get beyond these 18 events, we're not going to show them in the R&R map. They're going to be hung up in other somewhere. But the geography is critical. Did we record anything over here in the income statements section? No. So there's no way it's going to get into the pre-close trial balance, and therefore no way in which it's going to get into the income statement. So this event, buying inventory on account is not going to affect the income statement. Is it going to affect the statement of shareholders' equity? Same thing, no. We didn't record anything over here into the permanent owners' equity accounts so no effect there. Does is affect the balance sheet? Well, it's called the balance sheet equation matrix. Every entry affects the balance sheet. It's just where. But we know now what accounts we record into. Inventory so that number is going down to the ending balance of inventories. That's going to end up in the inventories balances right there. Inventories is affected and of course accounts payable is affected, and accounts payable is down there in our liabilities. There it is there so that's affected. 8

So of the three statements we've studied thus far, this entry only affects one of them, the balance sheet, and the balance sheet is always going to be affected by entries. Equally important, we know the income statement and the statement of shareholders' equity are not affected by this entry. Depreciation Now let's do one more and this entry is going to affect income. So what are we doing here? Well, an entry we've studied earlier in the chapter and that is recording depreciation expense. How does it work? You might recall accumulated depreciation which is our contra asset, that account increased by $7 and so that pulled down assets, and then we have an expense on the other side. Well, let's find it. Well, first of all, it's in the end of period entry. It happens to be about here. I know that because I looked by blowing up the picture, and over here somewhere. But again, anywhere over here would work, in the income statements, anywhere in the assets would work. As long as you know the accounts from your mini matrix, you'll be fine. All you're trying to do with the BSE [balance-sheet equation] is get geographically where it's located. Now let's see how this affects our statements, and I always prefer to start by the income statement. Does this affect the income statement? Yeah, absolutely. We recorded something into an income account. It has to affect the income statement and it's going to go into the preclose trial balance. That's going to flow into the income statement. Where is it on the income statement? Right there - depreciation. Now if you can't see that, you can always blow it up. You can download the PDF of this and you can magnify it to any power you want and see any level of detail you want as you navigate around the R&R map. That's one of the beauties of it. So it's perfectly scalable in a physical sense because you can blow the PDF up to any power you want. But it's also scalable in a conceptual sense. Remember, you could have billions of entries for a real company and thousands of accounts, and all the concepts we're teaching you here, all the mapping, it will still work, and that means for every entry we record in the rest of the book, you're going to be able to follow this procedure I'm taking you through right now. So what do we have? Well, we got an effect on the income statement. Does this entry affect the statement of shareholders' equity? You're tempted to say no because we didn't record anything over here into the pink, nothing in the permanent owners' equity. But listen carefully. Here s where you really have to understand the closing entries. You see, anything that's recorded here, into the income accounts, is going to end up in the pre-close trial balance, but anything in the pre-close trial balance goes into the income summary as we close those accounts out, and then that gets closed out into retained earnings. Again, any entry that affects the income statement will go into the pre-close trial balance, will end up in income summary, will end up in retained earnings. So when you ask, does this entry that affects income affect the statement of shareholders' equity? Well, the answer is yes. There is profit (loss) so that $89 number right there which ended up in retained earnings, well, that number was partially impacted by this depreciation entry we recorded up here. Again, this is fundamentally important to understand, and it's the reason by the way we started by asking is the income statement affected, because if the income statement is 9

affected, right away you know the statement of shareholders' equity is affected but you also know where there's an impact on the balance sheet and that's going to be what students often miss. So let's see what happens to the balance sheet. Well, remember where our entry was. It was over here and over here. On the asset side, we know PP&E was affected, net PP&E, and in particular the accumulated depreciation. So let's go see if we can find that on the balance sheet. Here is our balance sheet. We're under the non-current assets. There's property, plant, and equipment, historical cost, accumulated depreciation right there. So there it is. Accumulated depreciation is affected. Now, students are often tempted to say that's the only impact on the balance sheet. Well, then it wouldn't balance. You can't have that. So there's got to be another one and we know now, right? Because we know we affected the income statement and we know that flowed into retained earnings so we know retained earnings is affected. Now let's review the concept that's going to apply to virtually every entry you record that affects an income account. Any entry that affects an income account over here is going to have multiple effects. First of all, it's going to affect the income statement. Second, it's going to affect the statement of shareholders' equity and that effect is going to show up in net income or net profits line item in the statement of shareholders' equity, and third, it's going to affect the balance sheet. Where on the balance sheet? Retained earnings down here. That would be true for every entry that affects income, and of course, there would be another effect on the balance sheet because it has to balance. Take-aways What should you know by now? Well, first of all, you need to understand the entry for dividends. There's two of them. One of them, the board declares the dividend, in which case it is legally obligated so there's liability and that reduces retained earnings at that point, and if the fiscal year ends, well, we're going to see that on the statement of shareholders' equity as a reduction of the retained earnings account. And then there's going to be a liability on the balance sheet because we're obligated to pay that dividend going forward. So if we put it on our balance sheets here, that's what we'll see. And then in the next year, when we pay the dividend, well, that's going to reduce our liability and reduce our cash; and again, we can trace these two entries through our R&R map as we just demonstrated. Well, you should also understand the closing entries. Now recall what we did here and what our objectives were. First of all, we took the income accounts and we closed them out, and what we meant by closing them out is we got them all to zero balances. How did we get them to zero balances? Well, that's easy. Whatever their balance was, we subtracted it. Now when we did that in this entry right here, the first entry for closing out the income statement, we ended up by putting everything in the income summary and then we took everything out of the income summary and we moved it over to retained earnings, and we said you could do those both in one step if you wanted, but that's really important because that told us how income got into retained earnings on the statement of shareholders' equity. Now, we also saw that we could close our other comprehensive income into the reserves, also called accumulated other comprehensive income. 10

So those were the really important things, and in the end, all the temporary accounts have zero balances and we'd move their balances over to the permanent owners' equity accounts, and therefore, that's part of what's going on behind the statement of shareholders' equity when we see profits in retained earnings and we see OCI in the reserves or in accumulated other comprehensive income. What else should you know? Well, you should begin to see the power of this Record-Keeping and Reporting Map, and you're going to have to struggle with this early on. Students generally do. It looks kind of overwhelming, but after a while, it will be your friend. As a matter of fact, students refer to this as course on a page. If you can really understand this map, well, you're going to see how things flow through and that's going to help you tremendously in this course and in any course you're taking that has to do with accounting or more generally with finance for that matter. But more importantly, it's going to help you in your career because when you're on the job, you are going to care or your manager is going to care about how transactions affect the financial statements regardless of what part of the business you're in. Importantly, if you just do financing for your own benefits, well, you're going to want to understand this. Why? Think about what you're going to see. This is what an outsider sees. So if you're an investor or your own benefit or for a company you're working for, here is the income statement; here is the balance sheet; here is the statement of shareholders' equity. You're trying to interpret these numbers. Part of trying to interpret the number is to connect them to what's going on in the business and the connective glue between what's going on in the business and the statements is entries. So you need to understand entries for that reason. Where are we heading? Well, we're going to finish up the R&R map. You see we've already got the income statement. We've already got the balance sheet. We've already got the statement of shareholders' equity. We're going to add what's called direct cash flow and what's called the reconciliation or the indirect cash flow in the next chapter. Now, the beauty of that is that's it. It's all the statements and here is the power of what we're doing. Every entry we learn from now on is going to fit into this conceptual map so we could learn thousands of entries and it all fit in and you're going to understand how all the statements connect to each other and how any event up here flows into each of the statements or doesn't flow into the statements, and that is the payoff for all the hard work you're doing to learn how to record the entries. It's not immediately obvious to you now, but when you get good at this, wow, are you going to comfortable recording entries and more importantly, understanding how they impact financial statements. See you in the next video. 11