Comprehensive understanding of the effects of
Revenues
and
Expenses
on the three financial statements
Step 1
Income statement
Step 2
+ Retained earnings
Step 3
+ Balance sheet
Select a ratio:
Return on equity
Debt to equity
Current ratio
Clear
Simplifying assumptions
A/R
All sales occurred on account;
none were collected
this period.
A/R = Sales revenue
S/P
All salaries earned but
none paid
in cash.
S/P = Salaries expense
Scenario
Parameter setup
Choose values to flow through the statements
Sales revenue
3 options
$45,000
$50,000
$60,000
Salaries expense
3 options
$6,000
$8,000
$12,000
Statement 1
Income statement
For the year ended Dec 31, 20XX
Sales revenue
$50,000
− Cost of goods sold
(20,000)
− Salaries expense
(8,000)
− Rent expense
(4,000)
= Net income
$18,000
Statement 2
Statement of retained earnings
For the year ended Dec 31, 20XX
Beginning retained earnings
$12,000
+ Net income
18,000
− Dividends
(5,000)
= Ending retained earnings
$25,000
Statement 3
Balance sheet
As of Dec 31, 20XX
Assets
Cash
$13,000
Accounts receivable
50,000
Inventory
12,000
Equipment
30,000
Total assets
$105,000
Liabilities
Accounts payable
$40,000
Salaries payable
8,000
Notes payable
12,000
Total liabilities
$60,000
Stockholders' equity
Common stock
$20,000
Retained earnings
25,000
Total shareholders' equity
$45,000
Total liab. & equity
$105,000