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Record business events using a horizontal financial statements model.

Financial statements are the scorecard for business activity. If you want to succeed in business, you must know how your business decisions affect your company’s financial statements. This text uses a horizontal statements modelArrangement of a set of financial statements horizontally across a sheet of paper. to help you understand how business events affect financial statements. This model shows a set of financial statements horizontally across a single page of paper. The balance sheet is displayed first, adjacent to the income statement, and then the statement of cash flows. Because the effects of equity transactions can be analyzed by referring to certain balance sheet columns, and because of limited space, the statement of changes in stockholders’ equity is not shown in the horizontal statements model.

The model frequently uses abbreviations. For example, activity classifications in the statement of cash flows are identified using OA for operating activities, IA for investing activities, and FA for financing activities. NC designates the net change in cash. The statements model uses “NA” when an account is not affected by an event. The background of the balance sheet is red, the income statement is blue, and the statement of cash flows is green. To demonstrate the usefulness of the horizontal statements model, we use it to display the seven accounting events that RCS experienced during its first year of operation (2004).

1. RCS acquired $120,000 cash from the owners.
2. RCS borrowed $400,000 cash.
3. RCS paid $500,000 cash to purchase land.
4. RCS received $85,000 cash from earning revenue.
5. RCS paid $50,000 cash for expenses.
6. RCS paid $4,000 of cash dividends to the owners.
7. The market value of the land owned by RCS was appraised at $525,000 on December 31, 2004.

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Recognize that statements models are learning tools. Because they are helpful in understanding how accounting events affect financial statements, they are used extensively in this book. However, the models omit many of the details used in published financial statements. For example, the horizontal model shows only a partial set of statements. Also, since the statements are presented in aggregate, the description of dates (i.e., “as of” versus “for the period ended") does not distinguish periodic from cumulative data.

Exercises  1-21A, 1-22A, 1-23A, 1-24A, 1-21B, 1-22B, 1-23B, 1-24B

Problems  1-33A, 1-34A, 1-33B, 1-34B