Transaction Analysis Slides
Transaction Analysis Slides
Analysis
RECORDING AND ANALYZING BUSINESS TRANSACTIONS
Recording Business Transactions:
Some Advice
▪ There are a lot of details in this chapter:
▪ Pay attention to them, learn them
▪ Try not to get too bogged down by them!
▪ Focus on the big picture:
◦ What do businesses do?
◦ How do these transactions affect a business’s financial position?
How do various transactions affect a
business’s financial position?
▪ The financial position of a company is reflected by it’s Balance Sheet
Stockholders
Assets = Liabilities +
Equity
What we
= How we paid for it
Have
Some Rules
▪ Economic events that change the financial position of a company are accounting
transactions and need to be reported
▪Only past events (that have already occurred) are reported
▪The Balance Sheet must always balance
◦ Every transaction will have at least two parts
◦ Double entry accounting
▪ Investing
▪ Operating
▪Examples:
▪ Land, Building, Equipment, Software
What is the value of an asset?
How should it be recorded?
▪ Remember: What we own = How we paid for it
▪ Assets are recorded at historical cost – the original purchase price
▪Keeps the balance sheet balanced
▪Reliable value that came from a real transaction
▪ The fact that a transaction occurred, means both buyer and seller agreed
the sales price was a fair representation of the assets value (at least on that
date)
Is an asset’s historical cost informative?
▪ Historical Cost- cost when acquired
◦ Does not change over time
◦ Less Relevant but More Reliable (free from
error)
Relevance
Stockholders
Assets = Liabilities +
Equity
Reinvest →
Retained Earnings
Net Earned
Revenue Expense
Income Capital
Pay out to Investors
→ Dividends
The Accounting Equation Rewritten:
Financial Statement Effects Template
Balance Sheet Income Statement
Statement of Statement
Stockholders’ of Retained Beginning
Retained Earnings
Net Income Dividends
Equity Earnings
▪ For now, we will just focus on changes in earned capital (retained earnings):
▪Beginning Retained Earnings + Net Income – Dividends = Ending Retained Earnings
Consolidated Statements of Shareholders’ Equity - USD ($)
Total
Cumulative Effect, Period of
Common Stock
Additional Paid-
Treasury Stock
Retained Accumulated Other
Comprehensive Income
$ in Thousands Adoption, Adjustment In Capital
Earnings (Loss)
Beginning balance at Dec. 31, 2018 $ 1,928,504 $ (5,549) $7 $ 371,225 $ (67,016) $ 1,625,481 $ (1,193)
Share-based compensation 8,154 8,154
Repurchase of common stock (5,439) (5,439)
Proceeds from options exercised 1 1
Changes in comprehensive income 406 406
▪ Dividends are also a temporary account that flow into Retained Earnings
▪ All transactions end up and accumulate on the balance sheet