Financial Accounting: An Integrated Statements Approach, 2nd Edition

The preceding exhibit illustrates how the financial statements are integrated (or

linked) together. Specifically, the exhibit illustrates how the statement of cash flows is

linked to the balance sheet by the amount of cash at the end of the period. The income

statement and retained earnings statement are linked by the net income (or net loss)

for the period. In turn, the retained earnings statement and balance sheet are linked by

the amount of retained earnings at the end of the period.

To reinforce the importance of the integrated nature of the financial statements, the

authors include IFS exhibits similar to that shown above each time financial statements

are prepared or illustrated. Such IFS exhibits appear in Chapters 1, 2, 3, 4, and 5.

IFS Spreadsheets

Financial Accountinguses a specially designed IFS spreadsheet to record transactions

before the introduction of debits and credits. An example of the IFS spreadsheet is

shown at the top of the next page.

Since each transaction affects at least two elements of the balance sheet, the bal-

ance sheet in an accounting equation format appears in the top center of the IFS

spreadsheet. A statement of cash flows column is shown below the cash account col-

umn of the balance sheet. Each transaction affecting cash is shown as an increase or

decrease in the balance sheet cash account as well as an increase or decrease in oper-

ating, investing, or financing cash flows in the statement of cash flows column. The ef-

fect of the transaction on the two statements is shown with a connecting colored arrow.

An income statement column is shown below the retained earnings account col-

umn of the balance sheet. Each income statement transaction is shown affecting the

Hershey Foods Corporation

Balance Sheet

December 31, 2004

Assets  Liabilities  Stockholders’Equity

Cash $ 55 ••

••

• 
  
  
  
  • 
    
  
  
  • $3,469 Retained Earnings
    $3,797  $2,708  $1,
  
  
  
  

Hershey Foods Corporation

Statement of Cash Flows

For the Year Ended Dec. 31, 2004

Operating act. $ 797

Financing act.

Investing act. (363)

(494)

Decrease in cash $ (60)

Cash, Jan. 1 115

Cash, Dec. 31 $ 55

Hershey Foods Corporation

Retained Earnings Statement

For the Year Ended Dec. 31, 2004

Retained earnings, Jan. 1 $3,

Add: Net income $

Less: Dividends 386 205

Retained earnings, Dec. 31 $3,

Hershey Foods Corporation

Income Statement

For the Year Ended Dec. 31, 2004

Revenues $4,

Expenses 3,

Net income $ 591

3 1 2

$3,

Total Liabilities + Stockholders’ Equity

FROM PAGE 20

xii Preface

Exhibit 8

Integrated Financial Statements