The University of Texas at Austin

McCombs School of Business, Business Foundations Program

ACC 310F: Foundations of Accounting, Fall 2010

Class Notes – Chapters 1 and 2

Situation
You decide to start a beverage company to make some extra money.
 What resources do you need to start the business?

 Where can you get these resources?

 What information do you need to help run the business?

Source Documents and Transactions

Page 1
Financial Reports

Financial Statements

Page 2
Lemonade Tycoon

Hershey Financial Statements

The Hershey Company

Consolidated Statements of Income
in thousands of dollars

for years ended December 31, 2008 2007 2006

Revenues 5,132,768 4,946,716 4,944,230

Expenses
Cost of goods sold 3,375,050 3,315,147 3,076,718
Selling, general and administrative 1,073,019 895,874 860,378
Other 94,801 276,868 14,576
Interest 97,876 118,585 116,056
Taxes 180,617 126,088 317,441
Net Income 311,405 214,154 559,061

Page 3
 The Hershey Company
Consolidated Balance Sheets
in thousands of dollars

at December 31, 2008 2007

Assets
Cash and cash equivalents 37,103 129,198
Accounts receivable 455,153 487,285
Inventory 592,530 600,185
Property, plant and equipment 1,458,949 1,539,715
Other assets 1,090,984 1,490,730
Total Assets 3,634,719 4,247,113

Liabilities and Owners' Equity

Accounts payable 249,454 223,019
Other short-term debt 1,020,758 1,395,751
Long-term liabilities 2,046,308 2,035,421
Total Liabilities 3,316,520 3,654,191
Owners' Equity
Paid-in capital 712,276 695,157
Retained earnings 3,975,762 3,927,306
Treasury stock and other (4,369,839) (4,029,541)
Total Owner's Equity 318,199 592,922

Total Liabilities and Owners' Equity 3,634,719 4,247,113

The Hershey Company

Statement of Changes in Owners' Equity
in thousands of dollars

for years ended December 31, 2008 2007

Paid-in capital 712,276 695,157

Beginning retained earnings 3,927,306 3,965,415

+ Net income 311,405 214,154
- Dividends 262,949 252,263
Ending retained earnings 3,975,762 3,927,306

Treasury stock and other (4,369,839) (4,029,541)

Total Owners' Equity 318,199 592,922

Page 4
 The Hershey Company
Statement of Cash Flows
in thousands of dollars

for years ended December 31, 2008 2007

Cash provided (used) by

Operating activities 519,561 778,836
Investing activities (198,204) (304,353)
Financing activities (413,452) (442,426)
Net change in cash (92,095) 32,057

Financial Statement Relationships

Major Types of Accounting

 Financial

 Managerial

 Tax

Page 5
Your Decisions and Results

Page 6
Factors that Impact Financial Results
 Location
 Price
 Weather
 Recipe
 Advertising
 Purchases (Inventory and Upgrades)
 Customer Satisfaction and Popularity

Transactions
 Purchase inventory

 Sell products

 Pay Rent

Transaction Analysis Model

Page 7
Taylor Consulting Balance Sheet

Page 8
Taylor Consulting Source Documents

Page 9
Practice Problems (Answers are posted in the Course Documents section of Blackboard)
1. Use the information below to prepare an Income Statement and Balance Sheet for the ABC Company.
Accounts payable 5,000
Administrative expenses 10,000
Paid in capital 10,000
Building 45,000
Cash 10,000
Cost of goods sold 50,000
Accounts receivable 25,000
Retained earnings, Dec. 31st 48,000
Inventory 10,000
Notes payable 27,000
Revenues 80,000

2. Use the information below to prepare an Income Statement, Statement of Owners' Equity and Balance
Sheet for the Harrison Corporation. All items reflect year-end balances unless otherwise noted.
Accounts Receivable 4,900 Salaries Expense 152,000
Cost of goods sold 690,200 Inventory 3,366
Income Tax Expense 30,448 Withdrawals 5,000
Cash 10,250 Notes Payable 350,000
Revenue 946,000 Other Debt 12,500
Building 479,000 Capital 127,500
Supplies 15,500 Accounts Payable 9,944
Retained Earnings (Jan. 1) 19,900 Interest Expense 28,000
Selling Expense 39,680 Equipment 7,500

3. Several transactions took place at Donnie’s Potato Emporium during February as follows:
a. Borrowed $50,000 from a local bank.
b. Purchased ingredients worth $25,000 on account
c. Purchased equipment worth $5,800
d. Received an invoice for utilities from Austin City Utilities for $2,250
e. Sold merchandise to customers on account for $5,000 that cost $3,000 to produce
f. Paid one half of the amount due for the equipment
g. Paid the utility bill due to Austin City
h. Collected $3,000 of the accounts receivable
i. Owner withdrew $1,000
Prepare a horizontal model and then indicate the amount and effect of each transaction on the
horizontal model. Use your results to prepare an income statement, statement of owner’s equity and
balance sheet for the company.

Page 10