How the Three Financial Statements Fit Together — Transcript

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1. 0:01well nicely done you've made it to the
2. 0:03last video and by the way don't be put
3. 0:05off by the busyness of this screen uh
4. 0:08you know all the stuff here income
5. 0:10statement statement of cash flows
6. 0:12there's the balance sheet uh what I'm
7. 0:14going to do now is do a very fast rattle
8. 0:17through all three of these and uh just
9. 0:20to just to cover off all the work that
10. 0:22you already know all right you ready
11. 0:25Let's uh let's get going oh one thing by
12. 0:28the way and that is that you'll see
13. 0:30negative numbers don't have a dash in
14. 0:31front of them they're represented uh
15. 0:33with brackets around them okay ready go
16. 0:37this is for January for Acme web design
17. 0:39the income statement starts off with
18. 0:41sales of $5,000 and a corresponding cost
19. 0:44of good sold of 1,000 we know to
20. 0:47subtract the one from the five to get to
21. 0:50$4,000 then we have a bunch of expenses
22. 0:52General and administrative $6,000 that's
23. 0:55your rent uh telecommunications costs
24. 0:58administrative costs that's type of
25. 1:00thing no research and development cost
26. 1:02we have sales and marketing there was a
27. 1:04salary in there and a small campaign add
28. 1:06all those up to get to $9,000 and then
29. 1:09subtract uh
30. 1:104,000 subtract 9,000 from 4,000 to get
31. 1:14to minus 5,000 that's our fancily named
32. 1:17subtotal earnings before interest taxes
33. 1:20depreciation and amortization or called
34. 1:23eota we have no interest we didn't pay
35. 1:25anything to the bank and so therefore
36. 1:27our net income is $5,000 loss which
37. 1:30means we didn't make any money here that
38. 1:33$5,000 goes over to the top of the
39. 1:36statement of cash flows and then um the
40. 1:39uh $5,000 wor the sales wasn't paid to
41. 1:43us half of it uh instead went to
42. 1:45accounts receivable and when that
43. 1:47happens uh it decreases the cash we have
44. 1:50available there that's why a negative
45. 1:51number but you can also see that it
46. 1:53increases the accounts receivable
47. 1:55showing on the balance sheet but then we
48. 1:58didn't pay some of the uh costs uh this
49. 2:01month and so that increased our accounts
50. 2:03payable and also increased the amount of
51. 2:05cash that we have on hand there's the
52. 2:07accounts payable uh down here so total
53. 2:11um cash from operations is a minus 6500
54. 2:15we didn't buy any equipment we didn't
55. 2:16take out a loan but the founder did put
56. 2:18in
57. 2:20$225,000 uh against common stock
58. 2:22therefore the total cash uh proceeds
59. 2:25coming into the company this month is
60. 2:2818,500 there's the total of this this
61. 2:30and this and this uh cash at the start
62. 2:33of the period was Zero therefore cash at
63. 2:36the end of the period was1 185 and this
64. 2:38starts off our balance sheet right here
65. 2:41we know what the accounts receivable is
66. 2:43therefore total current assets is 21,000
67. 2:45no equipment um there's the accounts
68. 2:48payable total Uh current liabilities of
69. 2:51a th000 no long-term liabilities total
70. 2:53overall liabilities of a th000 there's
71. 2:55the common stock 25,000 sliding in here
72. 2:59and and retained earnings as you know is
73. 3:01the total of all of the uh profits and
74. 3:04losses since the company began and if
75. 3:06you look down you see a total of
76. 3:09liabilities and Equity of 21,000 which
77. 3:11balances with the total assets are
78. 3:14balance sheet
79. 3:15balances okay we're almost there I got
80. 3:18to show you one more
81. 3:22thing okay so what I've done here is
82. 3:24added in another month we're going to go
83. 3:26through the month of February and we're
84. 3:28going to do very quickly all right sales
85. 3:30of 7,000 is up from the previous month
86. 3:33corresponding 20% cost of good sold
87. 3:35leaves a gross profit of
88. 3:365600 uh expenses hasn't changed still
89. 3:39$9,000 worth of expenses 5600 of gross
90. 3:42profit minus the 9,000 in expenses
91. 3:44equals the EA of- 3,400 so we're still
92. 3:47losing money but not as bad which is
93. 3:49exactly what you want to see in a new
94. 3:50company we did pay the bank $100 worth
95. 3:53of interest and I'll show you why in
96. 3:54just a minute and 3400 - 3400 - 100 is
97. 3:58equal to - 35 00 the loss for the month
98. 4:01and that starts off our statement of
99. 4:04cash flows at the top okay here's a
100. 4:06little trickiness the $2500 in accounts
101. 4:09receivable last month got paid to us
102. 4:11this month but we also then took half of
103. 4:15this sales then went back into accounts
104. 4:18receivable the difference between the
105. 4:202500 from last month and the $3500 from
106. 4:22this month is $1,000 so accounts
107. 4:24receivable went up by $11,000 as you can
108. 4:27see here uh which just reduces our cash
109. 4:30the accounts payable we paid our bills
110. 4:32from last month but then didn't pay some
111. 4:34of our bills from this month so accounts
112. 4:36payable is still at $11,000 unchanged uh
113. 4:40net cash from operations minus 4500 we
114. 4:43then bought some equipment we paid
115. 4:45$112,000 for it we took a a loan from
116. 4:48the bank for 10,000 of that common stock
117. 4:51remains unchanged therefore the total of
118. 4:54the cash flows from operations and
119. 4:57investing and financing is equal to-
120. 5:01$6,500 um so the in the month $6,500
121. 5:05went out of the company but we started
122. 5:07off we ended up last month with 1885
123. 5:10cash that starts off this month and
124. 5:12therefore we still have $122,000 in the
125. 5:15bank as you can see here starting off uh
126. 5:18but ending off this month there's our
127. 5:20total current assets longterm there's
128. 5:22the $112,000 equipment right here and uh
129. 5:26so the total assets is 27,500
130. 5:29um the equipment loan of $110,000 shows
131. 5:32up right here in our balance sheet
132. 5:33that's a liability something that we
133. 5:35have to pay back and so our total
134. 5:37liabilities is 1,000 + 10 is equal to 11
135. 5:41common stock remains unchanged retained
136. 5:43earnings as you'll recall is the total
137. 5:46of all of the uh profits and losses
138. 5:49since the company began which is indeed
139. 5:518500 and you can see that at the bottom
140. 5:53the total of liabilities and owners
141. 5:55Equity is 27,500 and so our balance
142. 5:57sheet balances perfect
143. 6:01well listen you've been a great student
144. 6:03and I've really appreciated that you
145. 6:06spent this time with me uh financial
146. 6:08statements are an excellent tool to
147. 6:10guide you to success so the best thing
148. 6:13you can do is to hire a bookkeeper uh to
149. 6:15do your financials uh every single month
150. 6:18and then meet with your accountant
151. 6:19regularly uh monthly or uh no less
152. 6:22frequently than every three months and
153. 6:25um uh I wish you all the very best