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Prepare a Statement of Changes in Stockholders Equity

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					    PART ONE
    BASIC FINANCIAL ACCOUNTING

     As an introduction to financial accounting, this section of
the course is designed to familiarize managers with the content,
limitations and uses of general-purpose financial statements of
profit-oriented business firms. Previous training or experience
in financial accounting is not required of participants.     The
primary learning objective is for participants to be able to
interpret and use the basic financial statements prepared for a
business entity. The course is not designed to emphasize the
procedural aspects of statement preparation. However, you will
have the opportunity to prepare some basic financial statements;
you will also analyze and interpret financial statements.

     Methods of instruction will include lecture, illustrative
cases, group discussion and assigned cases which provide an
opportunity for hands-on experience with financial statements
and their use.   The technical notes and case material in this
workbook will be used during our class sessions and for selected
reading assignments.      The daily course schedule includes
references to specific sections of this course manual.
                             PART ONE
                BASIC FINANCIAL ACCOUNTING


                                                               Page

          I.   COMPONENTS OF FINANCIAL STATEMENTS -
               THE BALANCE SHEET ...........................     1

         II.   COMPONENTS OF FINANCIAL STATEMENTS -
               THE INCOME STATEMENT ........................     5

        III.   THE ABC'S OF FINANCIAL ACCOUNTING ...........     9

         IV.   ACCOUNTING CONCEPTS AND PRINCIPLES ..........    18

          V.   ALTERNATIVE ACCOUNTING METHODS ..............    21

         VI.   ACCOUNTING FOR INCOME TAXES .................    29

        VII.   CASH FLOW ANALYSIS ..........................    32

       VIII.   WORKING CAPITAL ANALYSIS ....................    41

         IX.   FINANCIAL STATEMENT ANALYSIS ................    49




    BASIC FINANCIAL ACCOUNTING
     A primary function of management is to acquire and utilize
economic resources in order to accomplish the various goals and
objectives of the business enterprise. Accordingly, the ability to
                                                                            2

understand financial statements and their information content is an
important skill of successful managers. The basic elements used to
prepare financial statements of a business enterprise are assets,
liabilities, owners' equity, revenues and expenses.

I.   COMPONENTS OF FINANCIAL STATEMENTS - THE BALANCE SHEET
     A. ASSETS - Assets are the physical properties, property
         rights, claims and other resources owned or controlled by the
         business entity.

        1.    Assets are classified as current or non-current.

              a.    Current Assets are expected to be converted to cash,
                    sold or used in business operations within one year
                    of the balance sheet date.    Current asset examples
                    include:   cash,   accounts  receivable,   marketable
                    securities & inventory.

              b.    Non-current Assets are assets that are not held for
                    the purpose of resale to customers. Examples of non-
                    current    assets  include:  land,   buildings   and
                    equipment.

        2.    Valuation of Assets (Measurement in $)

              a.    Cash - actual cash balances.

              b.    Marketable Securities - primarily at current market
                    value.

              c.    Accounts Receivable - net realizable value, which is
                    the amount of cash expected to be received.

              d.    Inventories - historical cost (FIFO, LIFO or average
                    cost method).

              e.    Prepaid Expenses - amount paid in advance for
                    services to be received in the future.

              f.    Land - historical cost to acquire the properties.

              g.  Buildings and Equipment - historical cost less
                  accumulated depreciation.
       B.    LIABILITIES - Liabilities are debts and obligations of
             the business arising from completed transactions in
             which the firm acquired either assets or services.
             Most liabilities require the payment of cash at some
             future point in time.

             1.    Liabilities   are   classified    as   current   or
                   noncurrent.
                                                                 3

          a.   Current Liabilities require payment within one
               year from the balance sheet date. Examples of
               current liabilities include accounts payable,
               notes payable and accrued liabilities.

          b.   Non-current Liabilities are obligations and
               debts that will mature beyond one year from the
               balance sheet date.     Examples of non-current
               liabilities include long-term notes payable,
               bonds payable, or mortgage notes payable.

     2.   Valuation of Liabilities (Measurement in $)
          a. Accounts Payable - amount of cash to be paid in
              the future for supplies and materials that the
              firm acquired on a credit basis.

          b.   Accrued Liabilities - amount of cash to be paid
               in the future for services the firm has already
               utilized    in   its     operations  (salaries,
               royalties, commissions).

          c.   Notes Payable - the unpaid principal amount due
               to creditors such as commercial banks.




C.   STOCKHOLDERS' EQUITY - Stockholders' equity (or owners'
     equity) is the difference between total assets and total
     liabilities.    This difference represents the residual
     claims of owners against the firm's assets.    Equity is
     also called net worth or net assets.

     1.   The principal sources of stockholders' equity are:

          a.   Contributed Capital - This consists of common
               stock, preferred stock and other sources of
                                                                       4
                   paid-in capital (for a corporation).

              b.   Retained Earnings - Retained Earnings is the
                   cumulative amount of net income reported by the
                   firm since its formation, less any dividends paid
                   to stockholders.



         2.   Valuation of Stockholder Equity (Measurement in $)

              a.   Contributed capital is measured by the value of
                   assets or services that the company received in
                   exchange for shares of stock that were issued to
                   the owners (investors).

              b.   Retained Earnings is measured by total net income
                   of all previous years less dividends paid during
                   these years. The net income or net profit for a
                   period is added to the Retained Earnings element
                   of owners' equity.


    D.   THE BALANCE SHEET - The purpose of the balance sheet is
         to show the financial position of a business at a
         particular   date.    The   fundamental  balance  sheet
         relationship is:

              ASSETS = LIABILITIES + STOCKHOLDERS' EQUITY

         As an illustration of the balance sheet, examine the
         comparative balance sheets of Alamo Distributing Company
         shown in Exhibit 1.



EXHIBIT 1
                    ALAMO DISTRIBUTING COMPANY
                          BALANCE SHEETS
                      December 31, 20X1 and 20X2

ASSETS
Current Assets:                             20X1           20X2

    Cash                                  $ 70,000        $ 38,000
    Accounts Receivable (net)               65,000         105,000
    Inventories (at FIFO Cost)              31,000          52,000
    Prepaid Expenses                         6,000           4,500
                                                                      5
           Total Current Assets            $172,000       $199,500

Noncurrent Assets (at cost):
     Land                                  $208,000       $237,000
     Buildings                              150,000        150,000
     Equipment                              460,000        681,000
     Less: Accumulated Depreciation        (240,000)      (338,000)

           Total Noncurrent Assets         $578,000       $730,000

Total Assets                               $750,000       $929,500
                                           ========       ========

                LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
     Accounts Payable                    $ 22,000         $ 47,000
     Notes Payable                         60,000           32,000
     Accrued Liabilities                   18,000           24,000

           Total Current Liabilities       $100,000       $103,000

Notes Payable - Long Term                   312,000        400,500

Total Liabilities                          $412,000       $503,500

Stockholders' Equity:
     Common Stock (no par value)           $200,000       $220,000
     Retained Earnings                      138,000        206,000

           Total Stockholders' Equity      $338,000       $426,000

Total Liabilities & Stockholder Equity     $750,000       $929,500
                                           ========       ========


II.   COMPONENTS OF FINANCIAL STATEMENTS - THE INCOME STATEMENT

      A.   REVENUE - Revenue is gross income such as sales or
           contract fees resulting from an exchange transaction in
           which the company provided goods or services to outside
           parties.

      B.   EXPENSES - Cost of goods, services and other resources
           used by the business during a particular time period.

           1.   Cost of Goods Sold - cost of inventory delivered to
                customers.

           2.   Depreciation - systematic allocation of the cost of
                buildings and equipment to specific time periods.
                                                                       6

         3.    Salaries and Wages - costs incurred for services that
               are not expected to benefit future periods (the cost
               relates to services used in the current period).


    C.   MEASUREMENT OF REVENUES AND EXPENSES

         1.    With the accrual method of accounting, revenues are
               recognized when earned, which is usually at the point
               in time that a sale is completed or services are
               rendered. The recording of revenues is not dependent
               upon cash collections.

         2.    Expenses represent the cost of goods, services and/or
               other resources that are utilized during a period of
               time. The recording of expenses is not dependent
               upon cash payments. The matching concept requires
               that expenses must be associated with revenues of the
               same time period. Expenses are deducted from
               revenues to measure net income (profit or earnings)
               for a given time period.




    D.   THE INCOME STATEMENT - The income statement of a business
         entity presents the revenues earned and expenses
         resulting from operations of the business for a period of
         time.

         The comparative income statements of Alamo Distributing
         Company for the years ending December 31, 20X1 and 20X2
         are presented in Exhibit 2. The difference between the
         revenues and expenses is the amount of net income for
         each year, which represents an increase in the
         stockholders' equity of the firm.

EXHIBIT 2
                    ALAMO DISTRIBUTING COMPANY
                        INCOME STATEMENTS
              For Years Ending December 31, 20X1 and 20X2

                                            20X1            20X2
                                                                          7

    Sales                                $900,000         $1,200,000

    Cost of Goods Sold                   (350,000)            (580,000)

    Gross Profit on Sales                $550,000         $   620,000

    Selling Expenses                     (110,000)            (133,500)

    Administrative Expenses              (238,000)            (250,000)

    Income from Operations               $202,000         $   236,500

    Interest Expense                      (52,000)            (65,000)

    Income before Taxes                  $150,000         $   171,500

    Income Tax Expense                    (60,000)            (63,500)

    Net Income                           $ 90,000         $ 108,000
                                         ========         ==========

    Earnings per Common Share*              $1.80               $1.96

    Total Depreciation Expense
        included above .....             $ 82,000         $    98,000
    *
      Based on 50,000 and 55,000 average common shares outstanding
    in 20X1 and 20X2, respectively.
    E. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - a
        statement of changes in stockholders' equity summarizes
        all changes directly affecting account balances in the
        stockholders' equity section of the balance sheet.
        Such changes include net income, cash and stock
        dividends, issues of common or preferred stock and
        treasury stock transactions.

        Comparative Statements of Changes in Stockholders'
        Equity for Alamo Distributing Company are presented in
        Exhibit 3. Ending account balances on December 31 of
        each year are the amounts appearing in the balance
        sheets in Exhibit 1.

EXHIBIT 3
               ALAMO DISTRIBUTING COMPANY
     * STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
            For Years Ending December 31, 20X1 and 20X2

                                         STOCKHOLDERS' EQUITY
                                                                     8
                                   Common     Retained
                                    Stock     Earnings     Total

Balances on January 1, 20X1       $200,000    $ 78,000    $278,000

Net Income for 20X1                             90,000     90,000

Cash Dividends Declared                        (30,000)   (30,000)

Balances on December 31, 20X1     $200,000    $138,000    $338,000

Net Income for 20X2                            108,000    108,000

Cash Dividends Declared                        (40,000)   (40,000)

Common Shares Issued for Cash       20,000                 20,000

Balances on December 31, 20X2     $220,000    $206,000    $426,000
                                  ========    ========    ========

  *
      If there are no significant changes in common stock or
      other elements of contributed capital, only a Statement of
      Retained Earnings may be presented, as shown in the
      Retained Earnings column above.

				
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