FA29 - Merchandiser's Financial Statements - Stmt of Changes in Equity

Tony Bell

26 Aug 201904:28

Summary

TLDRIn this instructional video, the presenter guides the audience through the process of creating a Statement of Changes in Equity for Julie's Plumbing Supplies. Starting with the company's name and the statement's title, the video covers the basic components: common shares and retained earnings. The presenter demonstrates how to calculate changes in equity for the fiscal year ending March 31st, 2024, by adding net income and subtracting dividends. The video concludes with a neatly formatted statement, ensuring the math checks out, and teases the next topic: the balance sheet.

Takeaways

📌 The company being discussed is Julie's Plumbing Supplies.
📋 The task at hand is to create a statement of changes in shareholders' equity for the year ending March 31, 2024.
📈 The statement includes three main components: common shares, retained earnings, and totals.
💼 The beginning balance for common shares was $1,000, and it remained unchanged throughout the year.
📊 Retained earnings started at $41,000 and was affected by the net income of the year.
💹 The net income, as calculated from the income statement, was $57,000, which was added to the retained earnings.
💸 Dividends of $6,000 were paid out, which were then subtracted from the retained earnings.
🔢 The ending balance for retained earnings was calculated to be $92,000 after adjustments.
📝 The totals for the statement were correctly double underlined and dollar signs were placed appropriately.
🖥️ The speaker mentions using OneNote for creating the statement and provides feedback on its features.
📚 The video is part of a series, with the next video focusing on the balance sheet.

Q & A

What is the name of the company mentioned in the transcript?
-The name of the company mentioned in the transcript is Julie's Plumbing Supplies.
What financial statement is being discussed in the transcript?
-The transcript discusses the preparation of the Statement of Changes in Shareholders' Equity for Julie's Plumbing Supplies.
What are the key accounts involved in the Statement of Changes in Shareholders' Equity as mentioned in the transcript?
-The key accounts involved in the Statement of Changes in Shareholders' Equity are common shares and retained earnings.
What is the starting date for the financial period discussed in the transcript?
-The starting date for the financial period discussed in the transcript is April 1st, 2023.
What was the amount of common shares at the beginning of the year according to the transcript?
-According to the transcript, the amount of common shares at the beginning of the year was $1,000.
What was the initial retained earnings balance at the start of the year?
-The initial retained earnings balance at the start of the year was $41,000.
What is the net income amount that is added to retained earnings as per the transcript?
-The net income amount that is added to retained earnings, as per the transcript, is $57,000.
What is the amount of dividends that were deducted from the retained earnings according to the transcript?
-According to the transcript, the amount of dividends deducted from the retained earnings is $6,000.
What is the final balance of retained earnings after all adjustments as mentioned in the transcript?
-The final balance of retained earnings after all adjustments, as mentioned in the transcript, is $93,000.
What software does the speaker mention using for the demonstration in the transcript?
-The speaker mentions using a software called OneNote for the demonstration in the transcript.
What is the next financial statement the speaker plans to discuss in the following video according to the transcript?
-According to the transcript, the next financial statement the speaker plans to discuss in the following video is the Balance Sheet.

Outlines

00:00

📈 Introduction to Statement of Changes in Equity

The script begins with the completion of the income statement for Julie's Plumbing Supplies and transitions into the creation of the statement of changes in equity. It provides a three-line title format including the company name, statement name, and the financial year ending date. The focus is on the two key equity accounts: common shares and retained earnings, which are standard in introductory accounting. The script mentions the potential for other types of equity accounts in more advanced classes. It outlines the process of documenting the starting balances as of April 1st, 2023, using data from the trial balance.

📉 Analysis of Equity Changes for the Year

This paragraph delves into the specifics of how the equity accounts changed over the year. It confirms that there were no changes in the number of common shares, which remained constant. The retained earnings, however, experienced fluctuations due to the addition of net income from the income statement, which was $57,000, and the subtraction of dividends paid, amounting to $6,000. The script humorously acknowledges a struggle with drawing arrows to illustrate these changes, suggesting an informal and candid tone in the presentation.

🔢 Calculation of End-of-Period Equity Balances

The script concludes with the calculation of the end-of-period balances for the equity accounts. It demonstrates the arithmetic process of adjusting the retained earnings by adding net income and then subtracting dividends, resulting in a new balance. The common shares remain unchanged, and the final retained earnings balance is calculated to be $93,000. The script emphasizes the importance of ensuring the math is correct, using both addition and subtraction to confirm the accuracy of the statement of changes in equity.

📅 Upcoming Coverage: Balance Sheet Overview

In the final part of the script, the presenter teases the next video, which will focus on the balance sheet. This sets the expectation for viewers to stay tuned for further insights into financial statements, indicating a continuation of the educational series on accounting fundamentals.

Mindmap

Keywords

💡Income Statement

An income statement is a financial report that provides a summary of a company's revenues, expenses, and profits or losses over a specific period of time. In the video's context, the income statement for Julie's Plumbing Supplies is completed, and it is used as a basis for the statement of changes in equity, showing the company's financial performance up to the year ended March 31st, 2024.

💡Statement of Changes in Equity

This is a financial statement that shows the changes in the equity accounts of a company over a period of time. It details the opening balance, adjustments due to net income, dividends, and any other equity transactions. In the script, the creation of this statement for Julie's Plumbing Supplies is the main focus, illustrating the process of accounting for changes in shareholders' equity.

💡Shareholders' Equity

Shareholders' equity represents the residual interest in the assets of a company after deducting liabilities. It includes common shares, retained earnings, and sometimes preferred shares. The video script discusses the components of shareholders' equity for Julie's Plumbing Supplies, emphasizing common shares and retained earnings as the primary accounts.

💡Common Shares

Common shares, also known as common stock, represent the basic unit of ownership in a corporation. In the video, the common shares of Julie's Plumbing Supplies are mentioned with an initial value of $1,000, indicating the amount of capital raised from shareholders that remains unchanged throughout the year.

💡Retained Earnings

Retained earnings are the accumulated net income of a company that has not been distributed as dividends. They represent the portion of earnings reinvested in the business. In the script, retained earnings start at $41,000 and are adjusted by adding net income and subtracting dividends, reflecting the company's profitability and dividend policy.

💡Net Income

Net income is the final amount of profit or loss that a company realizes over a specific period of time after all expenses, costs, and taxes have been deducted from revenues. The script mentions a net income of $57,000, which is added to the retained earnings, showing the company's earnings for the year.

💡Dividends

Dividends are payments made by a corporation to its shareholders, usually as a distribution of profits. In the video, a dividend of $6,000 is deducted from the retained earnings, indicating how the company returns a portion of its profits to its shareholders.

💡Trial Balance

A trial balance is a report that lists the balances of all general ledger accounts at a particular time and is used to verify the accuracy of accounting entries. The script refers to the trial balance as the source of the initial common shares value for Julie's Plumbing Supplies.

💡Financial Reporting

Financial reporting involves the communication of financial information about a company's financial performance, position, and changes in financial position to users through financial statements. The video script is an example of financial reporting, as it walks through the process of creating two key financial statements for Julie's Plumbing Supplies.

💡OneNote

OneNote is a digital note-taking application that allows users to type, write, draw, and record notes. In the script, the presenter mentions using OneNote to create the financial statements, highlighting a practical tool used in the process of financial reporting and analysis.

💡Balance Sheet

A balance sheet is a financial statement that presents a company's assets, liabilities, and shareholders' equity at a specific point in time. Although not the main focus of the video script, the presenter mentions that the next video will cover the balance sheet, indicating the continuation of the financial reporting process.

Highlights

Introduction to creating a Statement of Changes in Equity for Julie's Plumbing Supplies.

The Statement of Changes in Equity includes three main components: company name, statement name, and date for the year ended.

The two key accounts in the statement are common shares and retained earnings.

Potential inclusion of preferred shares or other equity accounts in intermediate accounting classes.

The statement begins with the balances of common shares and retained earnings at the beginning of the year, April 1st, 2023.

Common shares remained unchanged at $1,000 from the beginning to the end of the year.

Retained earnings started at $41,000 and increased by net income of $57,000.

Dividends of $6,000 were deducted from the retained earnings.

The net change in retained earnings was calculated by adding net income and subtracting dividends.

The end of period balance for common shares remained at $1,000 with no change.

The final balance for retained earnings was calculated to be $92,000 after adjustments.

The total equity at the end of the period was confirmed by two methods, both yielding $93,000.

The importance of double underlining and placing dollar signs at the top of each column and beside the bottom line was emphasized.

The presenter experienced technical difficulties with drawing arrows in OneNote software during the explanation.

Feedback on OneNote software functionality was provided by the presenter in real-time.

The presenter's humor and candidness about their technical difficulties added a personal touch to the educational content.

A preview of the next video, which will focus on the balance sheet, was given to engage viewers.