series of bus trans

INFORMATION

Home

Ag Ec Home

Course Description Calendar AGEC Home

QUICK LINKS

Course Topics

Reference Topics

Related Links

Contact Instructor

Best if printed in landscape.

Basic Financial Statements -- General Review

The purpose of this page is to illustrate how a simple business transaction impacts each financial statement. The page begins with a sample format for the basic financial statments as a brief overview. The next section lists 10 business transactions that serve as the basis for this example. The last portions of this page summarizes the three financial statements following each business transaction.

Format of Basis Financial Statements

Balance Sheet

Balance Sheet for XYZ, Inc; September 30, 20XX
Assets		Liabilities
Cash	???	Operating loan	???
Equipment	???	Mortgage	???
Accounts receivable	???	.	.
Land	???	Total Liabilities	???
..	.	.	.
Total Assets	???	Net Worth (Equity)	???

Income Statement

Income Statement for XYZ, Inc. July 1, 20XX to Sept. 30, 20XX
Income (Revenue)	.
Revenue; product A	???
Revenue; product B	???
.	.
.	.
.	.
Total Income	???
.	.
Cost (Expenses)	.
Input supplies	???
Utilities	???
Labor (wages)	???
Repairs and Maintenance	???
.	.
Total Cost	???
.	.
Net Income (Profit or Loss)	???

Cash Flow Statement

Cash Flow Statement for XYZ, Inc. July 1, 20XX to Sept. 30, 20XX
.	July	August	September	October
Beginning cash balance	??	?????	.	.
Cash Inflow	.	.	.	.
Cash sale	???	.	.	.
Owner Contribution	???	.	.	.
Loan borrowed	???	.	.	.
.	.	.	.	.
.	.	.	.	.
.	.	.	.	.
Total Cash Available	???	.	.	.
.	.	.	.	.
Cash Outflow	.	.	.	.
Supplies	????	.	.	.
Labor (Wages)	????	.	.	.
Utilities	????	.	.	.
.	.	.	.	.
.	.	.	.	.
.	.	.	.	.
Loan principal paid	????	.	.	.
Interest on loan	????	.	.	.
Total Cash Needs	????	.	.	.
.	.	.	.	.
Ending cash balance	?????	.	.	.
.	.	.	.	.

The following list is a series of business transactions intended to illustrate how each transaction impacts each financial statement. Assume this is a new business so the first transaction is the owner depositing cash in a new checking account for the recently created business. The following sections suggest what each financial statement would report if they were prepared immediately after each business transaction. The purpose of the example is to illustrate how each transaction is reported on the financial statements.

BS means balance sheet, CF means cash flow statement, and IS means income statement.

Start a business with $100,000
- BS – 100,000 cash; 100,000 asset; no debt; 100,000 equity
- CF – 100,000 cash inflow
- IS – no income
Buy input inventory for $30,000 cash
- CF – 30,000 outflow
- BS – 70,000 cash and 30,000 inventory of input, 100,000 asset; no debt, 100,000 equity
- IS – no expense
3. Use 2/3 of inventory ($20,000) to produce a product worth $25,000
- CF – none
- BS – 70,000 cash; inventory of input at 10,000; inventory of product at 25,000; 105,000 in asset; no debt; 105,000 equity
- IS – 25,000 produce and 20,000 cost; 5,000 gain
Sell $15,000 of product for cash
- CF – 15,000 cash inflow
- BS – 85,000 cash, 10,000 product inventory, 10,000 input inventory; 105,000 asset; no debt; 105,000 equity
- IS – no income or expense
Borrow $50,000
- CF – 50,000 cash inflow
- BS -- 135,000 cash; 10,000 product inventory; 10,000 input inventory; 155,000 asset; 50,000 debt; 105,000 equity
- IS – no transaction
Buy land for $40,000
- CF – 40,000 cash outflow
- BS – 95,000 cash; 10,000 product inventory; 10,000 input inventory; 40,000 land; 155,000 asset; 50,000 debt; 105,000 equity
- IS – no cost
Buy input inventory for $50,000 cash
- CF – 50,000 cash outflow
- BS – 45,000 cash; 10,000 product inventory; 60,000 input inventory; 40,000 land; 155,000 asset; 50,000 debt; 105,000 equity
- IS – no cost
Produce product with 2/3 of inventory ($40,000) worth $50,000
- CF – none
- BS – 45,000 cash; 60,000 product inventory; 20,000 input inventory; 40,000 land; 165,000 asset; 50,000 debt; 115,000 equity
- IS – 50,000 produce with 40,000 cost; 10,000 gain
Pay $5,000 in wages
- CF – 5,000 outflow
- BS – 40,000 cash; 60,000 product inventory; 20,000 input inventory; 40,000 land; 160,000 asset; 50,000 debt; 110,000 equity
- IS – 5,000 cost
Sell $10,000 worth of inventory for only $8,000
- CF – 8,000 inflow
- BS – 48,000 cash; 50,000 product inventory; 20,000 input inventory; 40,000 land; 158,000 asset; 50,000 debt; 108,000 equity
- IS – 2,000 negative adjustment on income statement

After transaction 1 -- start a business with $100,000 cash

Balance Sheet for XYZ, Inc; Date not specified in this example
Assets		Liabilities
Cash	100,000	.	.
.	.	.	.
.	.	.	.
.	.	Total Liabilities	0
.	.	.	.
Total Assets	100,000	Net Worth (Equity)	100,000

Income Statement for XYZ, Inc. Time period not specified in this example
Income (Revenue)	.
.	.
.	.
.	.
.	.
.	.
Total Income	0
.	.
Cost (Expenses)	.
.	.
.	.
.	.
.	.
.	.
Total Cost	0
.	.
Net Income (Profit or Loss)	0

Cash Flow Statement for XYZ, Inc. Time period not specified in this example
.	Time period not Specified	.
Beginning cash balance	0
Cash Inflow	.
Owner Contribution	100,000
.	.
.	.
.	.
.	.
.	.
Total Cash Available	100,000
.	.
Cash Outflow	.
.	.
.	.
.	.
.	.
.	.
.	.
.	.
.	.
Total Cash Needs	0
.	.
Ending cash balance	100,000
.	.

After transaction 2 -- Purchase input inventory for $30,000 cash

Balance Sheet for XYZ, Inc; Date not specified in this example
Assets		Liabilities
Cash	70,000	.	.
Input inventory	30,000	.	.
.	.	.	.
.	.	Total Liabilities	0
.	.	.	.
Total Assets	100,000	Net Worth (Equity)	100,000

Income Statement for XYZ, Inc. Time period not specified in this example
Income (Revenue)	.
.	.
.	.
.	.
.	.
.	.
Total Income	0
.	.
Cost (Expenses)	.
.	.
.	.
.	.
.	.
.	.
Total Cost	0
.	.
Net Income (Profit or Loss)	0

Cash Flow Statement for XYZ, Inc. Time period not specified in this example
.	Time period not Specified	.
Beginning cash balance	0
Cash Inflow	.
Owner Contribution	100,000
.	.
.	.
.	.
.	.
.	.
Total Cash Available	100,000
.	.
Cash Outflow	.
Purchased input	30,000
.	.
.	.
.	.
.	.
.	.
.	.
.	.
Total Cash Needs	30,000
.	.
Ending cash balance	70,000
.	.

After transaction 3 -- Use 2/3 of input inventory to produce product worth $25,000

Balance Sheet for XYZ, Inc; Date not specified in this example
Assets		Liabilities
Cash	70,000	.	.
Input inventory	10,000	.	.
Product inventory	25,000	.	.
.	.	Total Liabilities	0
.	.	.	.
Total Assets	105,000	Net Worth (Equity)	105,000

Income Statement for XYZ, Inc. Time period not specified in this example
Income (Revenue)	.
Product produced	25,000
.	.
.	.
.	.
.	.
Total Income	25,000
.	.
Cost (Expenses)	.
Input used	20,000
.	.
.	.
.	.
.	.
Total Cost	20,000
.	.
Net Income (Profit or Loss)	5,000

Cash Flow Statement for XYZ, Inc. Time period not specified in this example
.	Time period not Specified	.
Beginning cash balance	0
Cash Inflow	.
Owner Contribution	100,000
.	.
.	.
.	.
.	.
.	.
Total Cash Available	100,000
.	.
Cash Outflow	.
Purchased input	30,000
.	.
.	.
.	.
.	.
.	.
.	.
.	.
Total Cash Needs	30,000
.	.
Ending cash balance	70,000
.	.

After transaction 4 -- Sell $15,000 of product for cash

Balance Sheet for XYZ, Inc; Date not specified in this example
Assets		Liabilities
Cash	85,000	.	.
Input inventory	10,000	.	.
Product inventory	10,000	.	.
.	.	Total Liabilities	0
.	.	.	.
Total Assets	105,000	Net Worth (Equity)	105,000

Income Statement for XYZ, Inc. Time period not specified in this example
Income (Revenue)	.
Product produced	25,000
.	.
.	.
.	.
.	.
Total Income	25,000
.	.
Cost (Expenses)	.
Input used	20,000
.	.
.	.
.	.
.	.
Total Cost	20,000
.	.
Net Income (Profit or Loss)	5,000

Cash Flow Statement for XYZ, Inc. Time period not specified in this example
.	Time period not Specified	.
Beginning cash balance	0
Cash Inflow	.
Owner Contribution	100,000
Cash sales	15,000
.	.
.	.
.	.
.	.
Total Cash Available	115,000
.	.
Cash Outflow	.
Purchased input	30,000
.	.
.	.
.	.
.	.
.	.
.	.
.	.
Total Cash Needs	30,000
.	.
Ending cash balance	85,000
.	.

After transaction 5 -- Borrow $50,000

Balance Sheet for XYZ, Inc; Date not specified in this example
Assets		Liabilities
Cash	135,000	Loan	50,000
Input inventory	10,000	.	.
Product inventory	10,000	.	.
.	.	Total Liabilities	50,000
.	.	.	.
Total Assets	155,000	Net Worth (Equity)	105,000

Income Statement for XYZ, Inc. Time period not specified in this example
Income (Revenue)	.
Product produced	25,000
.	.
.	.
.	.
.	.
Total Income	25,000
.	.
Cost (Expenses)	.
Input used	20,000
.	.
.	.
.	.
.	.
Total Cost	20,000
.	.
Net Income (Profit or Loss)	5,000

Cash Flow Statement for XYZ, Inc. Time period not specified in this example
.	Time period not Specified	.
Beginning cash balance	0
Cash Inflow	.
Owner Contribution	100,000
Cash sales	15,000
Loan proceeds	50,000
.	.
.	.
.	.
Total Cash Available	165,000
.	.
Cash Outflow	.
Purchased input	30,000
.	.
.	.
.	.
.	.
.	.
.	.
.	.
Total Cash Needs	30,000
.	.
Ending cash balance	135,000
.	.

After transaction 6 -- Buy land for $40,000 cash

Balance Sheet for XYZ, Inc; Date not specified in this example
Assets		Liabilities
Cash	95,000	Loan	50,000
Input inventory	10,000	.	.
Product inventory	10,000	.	.
Land	40,000	Total Liabilities	50,000
.	.	.	.
Total Assets	155,000	Net Worth (Equity)	105,000

Income Statement for XYZ, Inc. Time period not specified in this example
Income (Revenue)	.
Product produced	25,000
.	.
.	.
.	.
.	.
Total Income	25,000
.	.
Cost (Expenses)	.
Input used	20,000
.	.
.	.
.	.
.	.
Total Cost	20,000
.	.
Net Income (Profit or Loss)	5,000

Cash Flow Statement for XYZ, Inc. Time period not specified in this example
.	Time period not Specified	.
Beginning cash balance	0
Cash Inflow	.
Owner Contribution	100,000
Cash sales	15,000
Loan proceeds	50,000
.	.
.	.
.	.
Total Cash Available	165,000
.	.
Cash Outflow	.
Purchased input	30,000
Purchased land	40,000
.	.
.	.
.	.
.	.
.	.
.	.
Total Cash Needs	70,000
.	.
Ending cash balance	95,000
.	.

After transaction 7 -- Buy input inventory for $50,000 cash

Balance Sheet for XYZ, Inc; Date not specified in this example
Assets		Liabilities
Cash	45,000	Loan	50,000
Input inventory	60,000	.	.
Product inventory	10,000	.	.
Land	40,000	Total Liabilities	50,000
.	.	.	.
Total Assets	155,000	Net Worth (Equity)	105,000

Income Statement for XYZ, Inc. Time period not specified in this example
Income (Revenue)	.
Product produced	25,000
.	.
.	.
.	.
.	.
Total Income	25,000
.	.
Cost (Expenses)	.
Input used	20,000
.	.
.	.
.	.
.	.
Total Cost	20,000
.	.
Net Income (Profit or Loss)	5,000

Cash Flow Statement for XYZ, Inc. Time period not specified in this example
.	Time period not Specified	.
Beginning cash balance	0
Cash Inflow	.
Owner Contribution	100,000
Cash sales	15,000
Loan proceeds	50,000
.	.
.	.
.	.
Total Cash Available	165,000
.	.
Cash Outflow	.
Purchased input	30,000
Purchased land	40,000
Purchased input	50,000
.	.
.	.
.	.
.	.
.	.
Total Cash Needs	120,000
.	.
Ending cash balance	45,000
.	.

After transaction 8 -- Produce product with 2/3 of input inventory ($40,000) worth $50,000

Balance Sheet for XYZ, Inc; Date not specified in this example
Assets		Liabilities
Cash	45,000	Loan	50,000
Input inventory	20,000	.	.
Product inventory	60,000	.	.
Land	40,000	Total Liabilities	50,000
.	.	.	.
Total Assets	165,000	Net Worth (Equity)	115,000

Income Statement for XYZ, Inc. Time period not specified in this example
Income (Revenue)	.
Product produced	25,000
Product produced	50,000
.	.
.	.
.	.
Total Income	75,000
.	.
Cost (Expenses)	.
Input used	20,000
Input used	40,000
.	.
.	.
.	.
Total Cost	60,000
.	.
Net Income (Profit or Loss)	15,000

Cash Flow Statement for XYZ, Inc. Time period not specified in this example
.	Time period not Specified	.
Beginning cash balance	0
Cash Inflow	.
Owner Contribution	100,000
Cash sales	15,000
Loan proceeds	50,000
.	.
.	.
.	.
Total Cash Available	165,000
.	.
Cash Outflow	.
Purchased input	30,000
Purchased land	40,000
Purchased input	50,000
.	.
.	.
.	.
.	.
.	.
Total Cash Needs	120,000
.	.
Ending cash balance	45,000
.	.

After transaction 9 -- Pay $5,000 in wages

Balance Sheet for XYZ, Inc; Date not specified in this example
Assets		Liabilities
Cash	40,000	Loan	50,000
Input inventory	20,000	.	.
Product inventory	60,000	.	.
Land	40,000	Total Liabilities	50,000
.	.	.	.
Total Assets	160,000	Net Worth (Equity)	110,000

Income Statement for XYZ, Inc. Time period not specified in this example
Income (Revenue)	.
Product produced	25,000
Product produced	50,000
.	.
.	.
.	.
Total Income	75,000
.	.
Cost (Expenses)	.
Input used	20,000
Input used	40,000
Wages paid	5,000
.	.
.	.
Total Cost	65,000
.	.
Net Income (Profit or Loss)	10,000

Cash Flow Statement for XYZ, Inc. Time period not specified in this example
.	Time period not Specified	.
Beginning cash balance	0
Cash Inflow	.
Owner Contribution	100,000
Cash sales	15,000
Loan proceeds	50,000
.	.
.	.
.	.
Total Cash Available	165,000
.	.
Cash Outflow	.
Purchased input	30,000
Purchased land	40,000
Purchased input	50,000
Wages paid	5,000
.	.
.	.
.	.
.	.
Total Cash Needs	125,000
.	.
Ending cash balance	40,000
.	.

After transaction 10 -- sell $10,000 of product inventory for only $8,000 cash

Balance Sheet for XYZ, Inc; Date not specified in this example
Assets		Liabilities
Cash	48,000	Loan	50,000
Input inventory	20,000	.	.
Product inventory	50,000	.	.
Land	40,000	Total Liabilities	50,000
.	.	.	.
Total Assets	158,000	Net Worth (Equity)	108,000

Income Statement for XYZ, Inc. Time period not specified in this example
Income (Revenue)
Product produced	25,000
Product produced	50,000
Adjust value of product	-2,000
.	.
.	.
Total Income	73,000
.	.
Cost (Expenses)	.
Input used	20,000
Input used	40,000
Wages paid	5,000
.	.
.	.
Total Cost	65,000
.	.
Net Income (Profit or Loss)	8,000

Cash Flow Statement for XYZ, Inc. Time period not specified in this example
.	Time period not Specified	.
Beginning cash balance	0
Cash Inflow	.
Owner Contribution	100,000
Cash sales	15,000
Loan proceeds	50,000
Cash sales	8,000
.	.
.	.
Total Cash Available	173,000
.	.
Cash Outflow	.
Purchased input	30,000
Purchased land	40,000
Purchased input	50,000
Wages paid	5,000
.	.
.	.
.	.
.	.
Total Cash Needs	125,000
.	.
Ending cash balance	48,000
.	.

Consider each transaction as individual steps and recognize how they impact the financial statements.

Last Updated September 30, 2008

Email: David.Saxowsky@ndsu.edu

This material is intended for educational purposes only. It is not a substitute for competent professional advice. Seek appropriate advice for answers to your specific questions.

NDSU Home

Phone Book

Campus Map

NDSU Search

College of Agriculture

E-Mail:sswandal@ndsuext.nodak.edu
Published by Agricusiness and Applied Economics
Morrill Room 217
North Dakota State University, Fargo, ND 58105-5636
Phone: (701) 231-7441