Analysis of the Financial Statement (Example) - Part 2

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Hey everyone welcome back to the second

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part to our chapter one example,

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uh and in this video we are going to be

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taking what we did in the first part

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which is the

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chart of analysis and converting it into

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our financial statements and so we know

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our financial statements are the four

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that we're going to be dealing with

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is the income statement, the statement of

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retained earnings, the

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balance sheet, and the statement of cash

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flow, so let's

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get into it. Here is my template for

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my income statement you can write this

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out or print one out if you'd like, first

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I'm going to start by

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adding the name of my company to the top

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so this is alpha company

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this is the income statement and this is

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for the year ending december 31st

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20 something I'm just going to put xx

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there as a placeholder

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but keep in mind income statements are

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showing what we've done

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throughout the past year, so that's why

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it says for the year in

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december 31st it's not as of december

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31st what is the balance as of that day

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it's just saying this is what we've done

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over the course of the year that

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ends in december 31st. We also know on

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the income statement it's really

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comprised of two parts

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revenues and expenses so let's go into

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the revenues first we know that we have

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revenue in this problem obviously we've

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got it written down

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we should know that we have two types of

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revenues

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we have our consulting revenue which is

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our main type of revenue and then we

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also have rent revenue if you remember

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in transaction eight not only did we do

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consulting work for a client we also

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rented them our facility

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so we've got two types of revenue so

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let's start with our main one which is

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consulting

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revenue. In consulting revenue

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we have consulting revenue and

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transaction five which was 1240

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and we also have consulting revenue in

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transaction eight for 1200,

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so if we add those together those are

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going to give me a total consulting

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revenue

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of 2440, and then we also have that

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other revenue that was in transaction

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eight where we rented out our facility

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so we're going to call this one rent

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revenue

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and that was for 200 so I'm going to add

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200 there,

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so if I add up both of these types of

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revenues that's going to give me a total

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revenue

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of 2640. Now notice

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I put the total revenues out to the to

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the right a little bit to show that this

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is a

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sum of the sub calculations from above.

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Now let's go into our expenses we had a

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couple types of expenses they're the

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ones that have exp next to it that's why

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we did that,

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so transaction six we had rent revenue

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excuse me we had rent expense

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for 400 so I'm going to put rent expense

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and I'm going to put 400,

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and then we also had in transaction 7 we

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paid our employees 600

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for their salaries, so I'm going to put

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salaries expense

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for 600 notice both of these numbers are

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positive on my income statement

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whereas we had a negative on the chart

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that's because we're looking at it

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specifically from

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expenses not from retained earnings, the

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expenses went up but the retained

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earnings went down that's why they were

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negative on the chart,

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if we add these two expenses up that's

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going to give us a total expense of

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a thousand dollars which again we push

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it out to the side for the total

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expenses,

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and we also know that from the income

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equation

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revenues minus expenses gives us net

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income so 2640 minus 1000

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gives us 1640,

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and it's going to be double line because

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that is the last figure on this

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financial statement

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we're done with calculations we're not

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going to do anything else with that this

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is our bottom line figure.

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All right. That is the income statement

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the next one is the statement of

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retained earnings

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in the statement retained earnings again

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our name is at the top it's still for

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the year ending december 31st

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because again this is showing what we've

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done over the course of the year

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we are going to start these statement

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retainers with our beginning retained

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earnings or what our

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retained earnings balance was as of

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january 1st.

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We're a brand new business we don't have

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anything we started this year there's no

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indication that we were

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we were a business prior to this year so

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when you're a brand new business

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all of your balances start at zero no

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matter what you've invested in it

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everything starts at zero, so for us and

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this one our beginning retained earnings

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is going to be zero.

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To that we're going to add the net

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income we just found

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which is the 1640 and if we add that

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together that's going to give us

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1640, from that we're going to subtract

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out dividends if we had any

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now we do have some in transaction 11 we

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had 200 paid dividends

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so we're going to take away the 200 and

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that will give me a

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ending retained earnings of 144,

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and so again that's my last number

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double lined. You don't have to worry

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sums or the totals out to the right

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knees because this is just a very

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standard one column

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form so you don't have to worry about

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indenting the sums so that's just how

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this one works.

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All right. That is the statement of

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retained earnings now we're going to go

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to

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the balance sheet again our name is at

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the top, this time it doesn't say for the

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year ending

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it says december 31st 20 whatever and

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that's because a balance sheet again

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tells us exactly what the balance is as

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of that date not what we've done over

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the course or how it's changed over the

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course of

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the year but this is just really what is

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our balance as of right now,

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and so we these are split up into assets

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liabilities and equity

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so we're going to start with assets

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first we do have a few of them,

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so the first one we're going to deal

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with is cash always start with cash.

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Our cash balance as of that date is

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going to be

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5440 again we get that from the bottom

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of the column

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we have accounts receivables we had

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accounts receivables but they were paid

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off

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so you could if you wanted to add

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accounts receivables here and have a

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balance of zero but there's really no

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point in it

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so we're going to skip accounts

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receivables and go to the next one that

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we have a balance in

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which is supplies and our supplies

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balance is 2400

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and then we have equipment and equipment

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our balance is 2000,

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so if we add up all the assets

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that's going to give us a total asset

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of 9840.

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And we're going to double on this one

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notice because we're done with the

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calculations for

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this number we're not going to add

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anything to that number we're not going

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to do anything else that number the only

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thing we're gonna do that number is

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compare it,

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so we're gonna go ahead and put a double

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line under that. All right. Now we go to

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liabilities

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we have liabilities we have accounts

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payable so I'm gonna put accounts

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payables there

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our balance is 400 so and that's all we

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have

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so I can say that's the sum of my total

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liabilities is also 400,

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and then we have equity, and equity has

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the two parts the common stock and

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retained earnings,

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so common stock my balance is 8 000

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and retained earnings my balance is

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14.40. Now you can get that in two places

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you can get it in the chart that we just

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did

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or from the statement of retained

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earnings that we just completed, add that

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up that's going to give me a total

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equity

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of 9440 and if I add my liability and

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my equity up that's going to give me a

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total liability in equity of

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98.40 which again matches the assets so

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we know that our

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accounting equation is equal, that's a

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positive.

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All right. Now the last one we're going

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to have to do is the statement of cash

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flow,

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now statement of cash flow is a little

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bit trickier again we're going to start

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off with our name

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this is again showing what we've done

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for the past year

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so that's why it says for the year

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ending december 31st.

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This one's broken down in our three

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areas operating activity, investing

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activity,

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and financing activity. First we're going

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to look at only the

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operating activities or only the

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transactions that we have away next to

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and more specifically just to start off

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with the oas we're only going to look at

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the oas that are positive because we

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always want to start with a positive

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number.

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I kind of look at it as starting with

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your best foot forward you want to start

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with positive numbers,

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the first place you always want to start

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with is the cash that comes from your

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customers because that's your normal

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0:07:49.520,0:07:53.039

0:07:51.199,0:07:56.160

from customers

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and now I have to do some adding I had

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in transaction five

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1240 that came from customers,

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transaction eight

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two hundred that came from customers, and

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in transaction nine

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twelve hundred that came from customers

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so if I add all those up that means

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all the cash that I got from my

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customers was 2640.

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Now I don't have any more positive

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numbers coming in from oa so now I look

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at the negative numbers,

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the cash payments going out. So the first

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one I have is cash payments

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for supplies and I had two cash payments

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for supplies, I had

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it in transaction two I paid a thousand

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dollars

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and in transaction four I bought

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fourteen hundred dollars but I didn't

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pay for

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that in cash, later on in transaction

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10 I actually paid some of that off in

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cash so my cash payments for supplies is

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actually only 2000

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not 2400 because I haven't paid cash

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in 2400 yet for supplies

0:08:49.120,0:08:53.200

I still owe that 400, so my cash

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payments

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for supplies is negative two thousand

0:08:55.360,0:09:00.240

notice I am putting parentheses here.

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All right. The next one that we have that are

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is an oa that's going out

0:09:01.839,0:09:06.240

is cash payments for rent which is

0:09:04.880,0:09:08.480

transaction six

0:09:06.240,0:09:10.080

and so that was negative 400 it was paid

0:09:08.480,0:09:12.320

for cash,

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and then finally the last oa that has

0:09:12.320,0:09:16.399

cash flowing out

0:09:13.279,0:09:18.240

is cash payments for salaries

0:09:16.399,0:09:19.680

and that was for 600 so I'm going to put

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negative 600 there,

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and if I total this up this is going to

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give me a net cash flow from operating

0:09:23.200,0:09:27.600

activities

0:09:24.160,0:09:29.920

of negative 360. Now what does that mean?

0:09:27.600,0:09:32.080

Net cash flow from operating activities

0:09:29.920,0:09:34.080

tells me my cash went down because it's

0:09:32.080,0:09:36.800

a negative number my cash went down by

0:09:34.080,0:09:37.680

360 dollars simply from operating

0:09:36.800,0:09:40.080

activities,

0:09:37.680,0:09:40.880

simply from my day-to-day business

0:09:40.080,0:09:43.279

activities

0:09:40.880,0:09:44.800

which is not the best, we're just going

0:09:43.279,0:09:46.320

to chalk that up this is a brand new

0:09:44.800,0:09:47.519

business and it hasn't really got steam

0:09:46.320,0:09:49.680

yet,

0:09:47.519,0:09:50.880

but we really want that at its minimum

0:09:49.680,0:09:52.240

to be positive

0:09:50.880,0:09:54.720

but again we're in the first year so

0:09:52.240,0:09:57.600

we'll overlook that.

0:09:54.720,0:09:58.800

All right. So now let's go into investing

0:09:57.600,0:10:02.480

activities,

0:09:58.800,0:10:03.920

we had one ia it was not cash coming

0:10:02.480,0:10:05.519

in so we can't start with a positive

0:10:03.920,0:10:07.200

number here because we don't have any

0:10:05.519,0:10:08.640

we only have one that's cash going out

0:10:07.200,0:10:10.959

so we're going to call that cash payment

0:10:08.640,0:10:13.360

for equipment

0:10:10.959,0:10:14.399

and that was for negative 2 000, so if

0:10:13.360,0:10:15.760

that's our only one

0:10:14.399,0:10:19.200

then that's going to be our net cash

0:10:15.760,0:10:22.480

flow from investing activity.

0:10:19.200,0:10:26.160

So based on this we've lost 2

0:10:22.480,0:10:28.240

360 worth of cash just this year alone,

0:10:26.160,0:10:30.079

that's not the best but hopefully we've

0:10:28.240,0:10:31.440

got something to make it up in financing

0:10:30.079,0:10:32.720

activities, so let's go to financing

0:10:31.440,0:10:34.480

activities.

0:10:32.720,0:10:35.839

So in financing activities we actually

0:10:34.480,0:10:37.200

have two transactions that have

0:10:35.839,0:10:38.959

fa we want to start with the one that

0:10:37.200,0:10:40.560

has the positive number, so we'll start

0:10:38.959,0:10:42.399

with transaction one

0:10:40.560,0:10:44.720

and that's where we got cash from

0:10:42.399,0:10:46.560

investors in exchange for common stock,

0:10:44.720,0:10:51.120

so I'm going to put cash received from

0:10:46.560,0:10:51.120

common stock for 8 000

0:10:51.760,0:10:55.120

that takes care of that one, now let's go

0:10:53.440,0:10:56.240

to where we paid it out and that was in

0:10:55.120,0:10:59.440

transaction 11

0:10:56.240,0:10:59.760

which is the dividends, so cash payments

0:10:59.440,0:11:02.959

for

0:10:59.760,0:11:04.399

dividends that was negative 200. So if

0:11:02.959,0:11:04.720

we add that up that's going to give me a

0:11:04.399,0:11:07.839

net

0:11:04.720,0:11:10.959

cash flow from financing activities of

0:11:07.839,0:11:12.880

7800, so there's a positive number.

0:11:10.959,0:11:14.079

Now the next line item is the net

0:11:12.880,0:11:15.839

increase in cash

0:11:14.079,0:11:17.360

so if I add up the net cash flow from

0:11:15.839,0:11:19.040

operating activities from investing

0:11:17.360,0:11:20.000

activities and from financing activities

0:11:19.040,0:11:22.079

together

0:11:20.000,0:11:25.279

that's going to give me a net increase

0:11:22.079,0:11:27.360

in cash of 5440.

0:11:25.279,0:11:28.560

So my cash based on all of the

0:11:27.360,0:11:32.320

activities went

0:11:28.560,0:11:34.800

up by 5440 just this year alone.

0:11:32.320,0:11:36.399

Now if I add to that my beginning cash

0:11:34.800,0:11:38.640

balance from the beginning of this

0:11:36.399,0:11:40.480

the year which again we're brand new

0:11:38.640,0:11:42.320

business so it's going to be zero

0:11:40.480,0:11:44.880

that's going to give me my ending cash

0:11:42.320,0:11:48.160

balance which is 5440,

0:11:44.880,0:11:49.440

again that's a double line figure

0:11:48.160,0:11:51.120

because it is the bottom we're done with

0:11:49.440,0:11:53.600

that no more calculations

0:11:51.120,0:11:54.560

but if you take a look back at your

0:11:53.600,0:11:56.560

balance sheet

0:11:54.560,0:11:58.800

the ending cash balance here on the

0:11:56.560,0:12:00.720

statement of cash flow should equal

0:11:58.800,0:12:02.760

the cash balance on your balance sheet

0:12:00.720,0:12:04.560

and in this situation it does is still

0:12:02.760,0:12:06.480

5440,

0:12:04.560,0:12:07.680

and there you have it that is the

0:12:06.480,0:12:12.880

financial statements.

0:12:07.680,0:12:12.880

I hope that made sense you all take care.