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How the Three Financial Statements Fit Together - YouTube
Channel: Alex Glassey
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well nicely done you've made it to the
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last video and by the way don't be put
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off by the busyness of this screen you
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know all the stuff here income statement
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statement of cash flows there's the
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balance sheet what I'm going to do now
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is do a very fast rattle through all
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three of these and just to just to cover
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off all the work that you already know
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alright you ready let's let's get going
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oh one thing by the way and that is that
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you'll see negative numbers don't have a
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dash in front of them they're
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represented with brackets around them
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okay ready go this is for January for
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Acme web-design the income statement
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starts off with sales of $5,000 and a
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corresponding cost of goods sold of 1000
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we know to subtract the one from the
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five to get to $4,000 then we have a
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bunch of expenses general and
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administrative $6,000 that's your rent
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telecommunications costs administrative
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costs that's type of thing no research
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and development cost we have sales and
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marketing there was a salary in there in
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a small campaign add all those up to get
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to $9,000 and then subtract 4,000
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subtract 9,000 from 4,000 to get to
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minus 5000 that's our fancily name
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subtotal earnings before interest taxes
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depreciation and amortization or called
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Abbott ah we have no interest we didn't
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pay anything to the bank and so
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therefore our net income is $5,000 loss
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which means we didn't make any money
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here that $5,000 goes over to the top of
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the statement of cash flows and then the
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$5,000 whether the sales wasn't paid to
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us half of it instead went to accounts
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receivable and when that happens it
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decreases the cash we have available
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there that's why a negative number but
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you can also see that it increases the
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accounts receivable showing on the
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balance sheet but then we didn't pay
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some of the costs this month and so that
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increased our accounts payable and also
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increase the amount of cash that we have
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on hand there's the accounts payable
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down here so total
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from operations is a minus 6500 we
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didn't buy any equipment we didn't take
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out a loan but the founder did put in
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twenty five thousand dollars against
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common stock therefore the total cash
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proceeds coming into the company this
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month is eighteen thousand five hundred
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there's the total of this and this and
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this cash at the start of the period was
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zero therefore cash at the end of the
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period was eighteen five and this starts
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off our balance sheet right here we know
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what the accounts receivable is
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therefore total current assets is
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twenty-one thousand no equipment
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there's the accounts payable total
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current liabilities of a thousand no
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long-term liabilities total overall
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liabilities of a thousand there's the
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common stock
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twenty-five thousand sliding in here and
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retained earnings as you know is the
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total of all of the profits and losses
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since the company began and if you look
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down you see a total of liabilities in
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equity of twenty one thousand which
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balances with the total assets our
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balance sheet balances who okay we're
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almost there I got to show you one more
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thing okay so what I've done here is
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added in another month we're going to go
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through the month of February I'm going
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to do very quickly all right sales of
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seven thousand is up from the previous
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month corresponding twenty percent cost
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of goods sold leaves a gross profit of
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fifty six hundred expenses hasn't
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changed still nine thousand dollars
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worth of expenses fifty six hundred of
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gross profit minus the nine thousand and
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expenses equals the avatar of minus
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thirty four hundred so we're still
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losing money but not as bad which is
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exactly what you want to see in a new
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company we did pay the bank one hundred
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dollars worth of interest and I'll show
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you why in just a minute and thirty four
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hundred minus thirty four hundred minus
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100 is equal to minus thirty five
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hundred the loss for the month and that
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starts off our statement of cash flows
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at the top okay here's a little trick
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eNOS that twenty five hundred dollars in
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accounts receivable last month got paid
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to us this month but we also then took
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half of this sales then went back into
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accounts receivable the difference
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between the twenty five hundred from
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last month and the thirty-five hundred
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from this month is $1,000 so accounts
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receivable went up
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by $1,000 as you can see here which just
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reduces our cash the accounts payable we
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paid our bills from last month but then
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didn't pay some of our bills from this
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month so accounts payable is still at
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$1,000 unchanged net cash from
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operations minus 4500 we then bought
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some equipment we paid $12,000 for it we
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took a loan from the bank for 10,000 of
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that common stock remains unchanged
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therefore the total of the cash flows
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from operations and investing and
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financing is equal to minus 6500 dollars
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so the in the month 6500 dollars went
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out of the company but we started off we
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ended up last month with eighteen five
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cash that starts off this month and
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therefore we still have twelve thousand
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dollars in the bank as you can see here
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starting off about ending off this month
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there's our total current assets
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long-term there's the $12,000 equipment
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right here and so the total assets is
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twenty-seven thousand five hundred the
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equipment loan of $10,000 shows up right
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here in our balance sheet that's a
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liability something that we have to pay
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back and so our total liabilities is a
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thousand plus 10 is equal to eleven
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common stock remains unchanged retained
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earnings as you'll recall is the total
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of all of the profits and losses since
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the company began which is indeed 8,500
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and you can see that the bottom the
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total of liabilities and owner's equity
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is twenty-seven thousand five hundred
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and so our balance sheet balances
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perfect well listen you've been a great
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student and I've really appreciated that
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you spent this time with me financial
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statements are an excellent tool to
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guide you to success so the best thing
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you can do is to hire a bookkeeper to do
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your financials every single month and
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then meet with your accountant regularly
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monthly or no less frequently than every
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three months and I wish you all the very
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best
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