AS WE HAVE ALREADY DISCUSSED, THE INCOME statement by itself only hints at the cash-flow story. It offers no insight into where cash came from or how it was used, recording only two structural elements, revenue and expense, which track flows of value, not cash. The cash-flow statement integrates the income-statement data with the additional [...]

Click here to continue reading..

Here is a summary of the five basic financial-statement blocks and associated cash-generating options, along with a couple of examples of each:
FROM THE BALANCE SHEET

Sell or convert assets to cash: Sell a surplus delivery truck for cash, or collect faster than usual on an account receivable.
Borrow or increase liabilities: Borrow cash from the bank, or [...]

Click here to continue reading..

One of the most useful tools for evaluating the shape of balance sheets and income statements is to consider them on a commonsized basis; one that is expressed in percentages rather than dollars. The income statement thus begins with sales or revenue as 100%, and every other line item then becomes a percentage of sales [...]

Click here to continue reading..

Just as there are different shapes to balance sheets, there are different shapes to income statements. The jewelry store, for example, will typically have very high gross margins to compensate for its big investment in inventory. The higher gross margins help compensate for a long inventory-holding period, together with some level of fashion-related risks and [...]

Click here to continue reading..

A great many nursing homes, however, are not operated by their owners, but are leased to professional operators. Such an operator would typically own no real estate but might have considerable inventory in both short-term asset categories (such as consumables like food, sheets and supplies) and in long-term assets (such as furniture, medical equipment, vehicles [...]

Click here to continue reading..

The balance sheet and income statement are necessarily summary in nature and are put together to help evaluate what went on during the accounting period. They are not themselves everyday working documents but are constructed peri odically from the daily records of the business. That daily record-keeping process typically begins with the original records of [...]

Click here to continue reading..

Each income statement and balance sheet is limited by its very nature to the time period it covers. The income statement shows what happened during the time period and might be compared to a video as contrasted with the balance sheet, which is more like a still photo. The profit or loss that the income [...]

Click here to continue reading..

In other cases, though, despite having incurred the expenses, we have not yet paid for them; in that case we would accrue the expense items—for example, debit A, B, or C expense, which affects the income statement, and credit accrued expense—a liability on the balance sheet. Accrued expense is something we actually owe, a liability. [...]

Click here to continue reading..

What debit could logically offset the inventory credit of $500?
We know that inventory is an asset, but the actual use of inventory is an expense—and we did use some. The offset we are looking for, then, must be an expense item. In the earlier discussion of cash-versus accrual-accounting systems, I pointed out that in the [...]

Click here to continue reading..

The most common transaction in a business involves a sale. Because a sale represents revenue, we go ahead and debit sales for the amount of the sale—say, $1,000. In fact, though, we did not collect $1,000. Instead, we got $200 down, which increased our cash account—an asset—and we also created an account receivable, thereby increasing [...]

Click here to continue reading..