Chapter9
Accoun/ng
Aim:Howdoyoupreparean
incomestatement?
DoNow:
1.  TakeouttheChapter9Packetandanswerthe
“WhatDoYouThink?”ques/onaboutTapa/o.
2.  WritetheAiminyournotebook
3.  TakeoutyourHW
•  ReinforcetheMainIdea
•  DoTheMath
•  Problem9.1
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audit_alex/Player.html
FinancialStatements
•  FinancialStatements–summarizethe
changesresul/ngfrombusinesstransac/ons
thatoccurduringanaccoun/ngperiod.
•  FinancialStatementsinclude:
–  IncomeStatement
–  BalanceSheet
–  Statementofchangesinowner’sequity
–  Statementofcashflows
IncomeStatement
•  Incomestatement–reportsthenetincome
ornetlossforaspecificperiodof/me.
–  Alsocalledtheprofitandlossstatement
•  Revenue–Expenses=Netincomeor(Netloss)
IncomeStatementSec/ons
•  Theheading
1.  Thenameofthebusiness(Who?)
2.  Thenameofthereport(What?)
3.  Theperiodcovered(When?)
•  Therevenuefortheperiod
•  Theexpensesfortheperiod
•  Thenetincomeornetlossfortheperiod
Revenue
•  A_ertheheadinghasbeencompleted,enter
therevenueearnedfortheperiod.
•  Theinforma/onusedtopreparetheincome
statementcomesfromtheworksheet.
StepsToRecordRevenue
A-WriteRevenue:onthefirstlineatthele_
side.
B-Enterrevenueaccountnamesbeginningon
thesecondline.
C-Enterthebalanceofeachrevenueaccountin
thefirstamountcolumn.
Enterthetotalrevenueinthesecondamount
columnbeneaththelastrevenueamountand
writeTotalRevenuetotheright.
StepsToRecordExpenses
D-Onthelinefollowingtherevenuesec/on,write
Expenses:atthele_side.
E-Enterexpenseaccountnamesbeginningon
thenextlineandenterthebalancesinthefirst
amountcolumn.
F-Drawasinglerulelineunderthelastbalance.
G-WriteTotalExpensesonthelinebeneaththe
lastexpenseaccountname.
H-Addthebalancesfortheexpenseaccountsand
entertheamountinthesecondamountcolumn
belowthelastexpenseaccountbalance.
StepstoRecordNetIncome
I-Drawasinglerulelineunderthetotalexpenses
amount.
J-Subtracttotalexpensesfromtotalrevenueand
enterthevalueinthesecondamountcolumn
underthetotalexpensesamount.
K-Tothele_ofthisvalue,writeNetIncome.
L-Ifthisamountmatchestheamountonthework
sheet,drawadoublerulebeneaththenet
incomeamount.
Repor/nganetloss
•  Iftotalexpensesaremorethantotalrevenue,
anetlossexists.
•  Entertheamountofthenetlossinthesecond
amountcolumnunderthetotalexpenses
amount.
•  WritethewordsNetLossonthesamelineat
thele_sideoftheform.
NetLoss
Assignment
•  CompleteProblem9.4
Aim:Howdoyouprepareanincome
statement?Howdoyoupreparea
statementofchangesinOwner’sEquity?
DoNow:
•  TakeoutProblem9.4
•  ThinkAboutIt:
•  WheredoaccountantsgettheinformaConto
preparetheIncomeStatement?
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accoun/ng/audit_alex/Player.html
Problem9.4
WildernessRentals
IncomeStatement
FortheMonthEndedSeptember30,2017
Revenue:
EquipmentRentalRevenue
Expenses:
Adver/singExpense
MaintenanceExpense
RentExpense
U/li/esExpense
TotalExpenses
NetIncome
Assignment
EmmetTreeService
IncomeStatement
FortheMonthEndedJune30,2017
Revenue:
Expenses:
NetIncome
Owner’sEquity
•  Owner’sequity–owner’sclaimstotheassets
ofabusiness.
•  Anincreaseinowner’sequitymeansthe
owner’sclaimstotheassetsofthebusiness
hasgrown.
•  Adecreasemeanstheowner’sclaimstothe
assetshasbeenreduced.
Owner’sEquity–Cri/calThinking
•  Whyarebusinessowner’sconcernedabout
whetherowner’sequityincreasedor
decreased?
–  Itreflectswhethertheinvestmentisprovidingan
adequatereturn,andhowthebusinessis
performing.
•  Whatdecisionswouldanownermakebased
onchangesinowner’sequity?
Owner’sEquity
•  Statementofchangesinowner’sequity–
summarizeschangesintheowner’scapital
accountasaresultofbusinesstransac/onsthat
occurduringtheperiod.
–  Eventually,thebalancesofrevenues,expenses,and
theowner’swithdrawalaccountwillbetransferred
totheowner'scapitalaccount.
StatementofChangesinOwner’s
Equity
Theinforma/ontopreparethisstatementis
foundin:
§  theworksheet
§  theincomestatement
§  theowner’scapitalaccountinthegeneral
ledger
Assignment
•  StatementofChangesinOwner’sEquity
worksheet
•  Usethe“Steps”worksheetandtheexample
onpage226tohelpyoupreparethe
StatementofChangesinOwner’sEquity
Assignment
PrimePrin/ngCompany
StatementofChangesinOwner’sEquity
FortheMonthEndedJune30,2017
BeginningCapital,June1,2017
Add:InvestmentbyOwner
NetIncome
TotalIncreaseinCapital
Subtotal
Less:WithdrawalsbyOwner
EndingCapital,June30,2017
Homework
•  Problem9.2
•  Problem9.5pg.166&167
–  Usetheworksheettohelpyoupreparethe
StatementofChangesinOwner’sEquity
Aim:HowdoyouprepareaStatement
ofChangesinOwner’sEquity?
DoNow:
1.  Takethetwoworksheetsfrommydesk
•  Oneisaresourceforyoutousewhen
preparingIncomeStatementsandStatements
ofChangesinOwner’sEquity.
•  TheothersheetisanIncomeStatementto
completenow
2.  CopytheAiminyournotebook.
3.  TakeoutProblem9.2
Assignment
PrimePrin/ngCompany
IncomeStatement
FortheMonthEndedJune30,2017
Revenue:
Expenses:
NetIncome
Problem9.2
Beginning
Capital
Investments
Revenue
Expenses Withdrawals Answers
1
$60,000
$500
$5,100
$2400
$700
2
24,075
0
13,880
7,240
800
3
28,800
1,000
6,450
6,780
0
4
0
10,500
5,320
4,990
200
5
6,415
0
4,520
3,175
700
6
20,870
1,300
13,980
9,440
1,700
Owner’sEquity
•  Owner’sequity–owner’sclaimstotheassets
ofabusiness.
•  Anincreaseinowner’sequitymeansthe
owner’sclaimstotheassetsofthebusiness
hasgrown.
•  Adecreasemeanstheowner’sclaimstothe
assetshasbeenreduced.
Owner’sEquity–Cri/calThinking
•  Whyarebusinessowner’sconcernedabout
whetherowner’sequityincreasedor
decreased?
–  Itreflectswhethertheinvestmentisprovidingan
adequatereturn,andhowthebusinessis
performing.
•  Whatdecisionswouldanownermakebased
onchangesinowner’sequity?
Owner’sEquity
•  Statementofchangesinowner’sequity–
summarizeschangesintheowner’scapital
accountasaresultofbusinesstransac/onsthat
occurduringtheperiod.
–  Eventually,thebalancesofrevenues,expenses,and
theowner’swithdrawalaccountwillbetransferred
totheowner'scapitalaccount.
StatementofChangesinOwner’s
Equity
Theinforma/ontopreparethisstatementis
foundin:
§  theworksheet
§  theincomestatement
§  theowner’scapitalaccountinthegeneral
ledger
Assignment
•  StatementofChangesinOwner’sEquity
worksheet
•  Usethe“Steps”worksheetandtheexample
onpage226tohelpyoupreparethe
StatementofChangesinOwner’sEquity
Stepstocomplete
StatementofOwner’sEquity
A.  Onthefirstline,writeBeginningCapitalfollowedbya
commaandthefirstdayoftheperiod.
B.  Enterthebalanceofthecapitalaccountinthe
secondcolumn(foundongeneralledger).
• 
Ifusingaworksheet,youwillhavetosubtractInvestments
byOwnertofindtheoriginalbeginningbalance.
C.  Entertheincreasestothecapitalaccount.
• 
• 
• 
Enterthetotalinvestmentinthefirstamountcolumn.
EnterthewordsNetIncomeandthenetincomeamount
Drawasingleruleunderthenetincomeamount.
StepstocompleteStatementof
Owner’sEquity
D.  WriteTotalIncreaseinCapitalbeneaththeincreasesandenter
thetotalincreasesinthesecondamountcolumn.
E.  WriteSubtotalonthenextlineandenterthebeginningcapital
addedtothetotalincrease.
F.  Listthedecreasestothecapitalaccountbeginningonthenext
line(Less).
• 
Enterthewithdrawalsamountanddrawasingleruleunderthe
withdrawalsamount.
G.  WriteEndingCapitalonthenextlinefollowedbyacommaand
thelastdayoftheperiod.
H.  Subtractthewithdrawalsamountfromthesubtotaltogetthe
endingbalanceofthecapitalaccount.(Doublerule)
Aim:Howdoyouprepareastatementof
changesinOwner’sEquity?Whatisthe
purposeofaBalanceSheet?
DoNow:
•  TakeoutyourHomework(Statementof
ChangesinOwner’sEquityworksheet)
Assignment
PrimePrin/ngCompany
StatementofChangesinOwner’sEquity
FortheMonthEndedJune30,2017
BeginningCapital,June1,2017
Add:InvestmentbyOwner
NetIncome
TotalIncreaseinCapital
Subtotal
Less:WithdrawalsbyOwner
EndingCapital,June30,2017
Assignment
Diana’sDecora/ngService
IncomeStatement
FortheMonthEndedDecember31,2017
Revenue:
Expenses:
NetIncome
Assignment
Diana’sDecora/ngService
StatementofChangesinOwner’sEquity
FortheMonthEndedDecember31,2017
BeginningCapital,December1,2017
Add:NetIncome
Subtotal
Less:WithdrawalsbyOwner
EndingCapital,June30,2017
BeginningBalance
•  Thebeginningbalanceoftheowner’sequity
accountmaybedifferentthentheoneonthe
worksheet.
–  Forexample,supposeanownerinvested
addi/onalcapitaltothecompanyduringthe
period.
–  Thatamountwouldbedifferentthanthe
beginningbalance.
BeginningBalance
•  Therearetwowaystodeterminetheowner’s
capitalaccountbalanceatthebeginningof
theperiod:
1.Lookattheledger
2.Subtracttheaddi/onalinvestmentsfromthe
accountbalanceshownontheworksheet.
StatementofChangesinOwner’s
EquityShowingaNetLoss
•  Howdoyouincreaseowner’sequity?
– Investmentsbyowners
•  Howdoesowner’sequitydecrease?
– Withdrawalsbyownerornetloss
•  Theamountsoftheindividualitemsareentered
inthefirstcolumn,thetotaldecreaseincapitalis
enteredinthesecondamountcolumn.
Assignment
•  Problem9.5pg.166&167
–  Usetheworksheettohelpyoupreparethe
StatementofChangesinOwner’sEquity