Mr. Green starts a used car business with 50,000 AED of his own cash and a 100,000 AED loan. He prepares an initial balance sheet showing assets of 150,000 AED and liabilities and owner's equity of 150,000 AED. He later buys a car for 15,000 AED, which is recorded as inventory on an updated balance sheet. Mr. Green then sells the car, with part of the payment promised later, generating an income statement showing revenue of 20,000 AED, expenses of 1,000 AED, and net income of 4,000 AED. The income and new asset are recorded on a final updated balance sheet.

1. Balance Sheets and Income Statements

2. Contents Definitions: Matching Answers Definitions: Fill in the blanks Answers Case Study 1: Mr. Green’s Used Cars (page 1) Answers Case Study 1: Mr. Green’s Used Cars (page 2) Answers FWC Bazaar

3. Definitions Write the correct number in the blanks: 1. Account Receivable ___ Net Income is transferred here to the balance sheet 2. Revenue ___ cost of product(s) sold 3. Profits ___ $ received from sales (cash and promises to pay later) 4. Balance Sheet ___ a debt ($ owed) 5. Asset ___ Revenue – Cost of Goods Sold - Expenses 6. Loan ___ Money received by customers or money spent by a business on expenses 7. Cost of Goods Sold ___ Cash or something that can be turned into cash (examples: A/Rec, Inventory) 8. Gross Income ___ $ spent to do business (examples: rent, wages, electricity, promotion) 9. Liability ___ a financial report that shows the Net Income (Profit) of a business 10. Retained Earnings ___ Products bought to sell to customers 11. Cash ___ Assets – Liabilities 12. Expenses ___ $ borrowed (usually from a bank) 13. Income Statement ___ a financial report that shows assets, liabilities and owner’s equity of a business 14. Inventory ___ customer buys a product and promises to pay later (usually 30 days later) 15. Owner’s Equity ___ $ spent on advertising, brochures, free gifts, etc. 16. Promotion expenses ___ Revenue-Cost of Goods sold 17. Owner’s Capital ___ $ used by a business owner to start his/her business 18. Net Income ___ Another word for Net Income

4. Definitions: Answers 1. Account Receivable 10 Net Income is transferred here to the balance sheet 2. Revenue 7 cost of product(s) sold 3. Profits 2 $ received from sales (cash and promises to pay later) 4. Balance Sheet 9 a debt ($ owed) 5. Asset 18 Revenue – Cost of Goods Sold - Expenses 6. Loan 11 Money received by customers or money spent by a business on expenses 7. Cost of Goods Sold 5 Cash or something that can be turned into cash (examples: A/Rec, Inventory) 8. Gross Income 12 $ spent to do business (examples: rent, wages, electricity, promotion) 9. Liability 13 a financial report that shows the Net Income (Profit) of a business 10. Retained Earnings 14 Products bought to sell to customers 11. Cash 15 Assets – Liabilities 12. Expenses 6 $ borrowed (usually from a bank) 13. Income Statement 4 a financial report that shows assets, liabilities and owner’s equity of a business 14. Inventory 1 customer buys a product and promises to pay later (usually 30 days later) 15. Owner’s Equity 16 $ spent on advertising, brochures, free gifts, etc. 16. Promotion expenses 8 Revenue-Cost of Goods sold 17. Owner’s Capital 17 $ used by a business owner to start his/her business 18. Net Income 3 Another word for Net Income

5. Definitions: Account Receivable, Revenue, Profits, Balance Sheet, Asset, Loan, Cost of Goods Sold, Gross Income, Liabilitity, Retained Earnings, Cash, Expenses, Income Statement, Inventory, Owner’s Equity, Promotion Expenses, Owner’s Capital, Net Income Fill in the blanks: On March 1, Mr. Green starts a business with 50,000 AED___________ that he saved and a 100,000 AED _________ from the HSBC Bank. The bank asks him to prepare a _________________ to see how much he own and owes (debts). On this balance sheet, the 50,000 AED is recorded as ________________, and the 100,000 AED is recorded as a _______________. To make the balance sheet “balance”, the 50,000 AED is also recorded as _________________ and the 100,000 is recorded in _________________. On the Balance sheet, an asset can be ________________, _________________, and _____________________. A liability can be a ______________________. Owner’s Equity can be ____________________ and ________________________. On March 7, Mr. Green decides to sell used cars. He buys a 2007 Nissan Sunny for 15,000 AED Cash. On the balance sheet, this 15,000 for the Nissan Sunny is record as ______________________. To make the balance sheet “balance”, 15,000 is subtracted from ______________. On March 14, Mr. Green sells his Nissay Sunny for 20,000 AED to Ms. Rosy. Ms Rosy pays 15,000 Cash and promises to pay 5,000 in 30 days. For a new balance sheet, 15,000 is added to ________________ and the 5,000 is recorded as an ____________________. When a business sells products, it must reduce ________________ on the balance sheet. So, Mr. Green must reduce his _________________ by 15,000 (cost price, not sales price). When a business sells products, it can also produce an __________________ to calculate ___________profits and _____________ profits. The ______________for this sale is 20,000 AED and the ___________________for this sale is 15,000. Therefore, the gross income for this sale ______________ is 20,000 – 15,000 = 5,000 AED. This amount, 5,000 AED, is transferred to the balance sheet to ______________________. On March 10, Mr. Green paid 1,000 AED for an advertisement in The National newspaper for his Nissan Sunny. To calculate ______________ or profits from March 1-14, the calculation is 20,000-15,000 (Gross Income) - ______________ of 1,000.

6. Definitions: Account Receivable, Revenue, Profits, Balance Sheet, Asset, Loan, Cost of Goods Sold, Gross Income, Liabilitity, Retained Earnings, Cash, Expenses, Income Statement, Inventory, Owner’s Equity, Promotion Expenses, Owner’s Capital, Net Income Answers: On March 1, Mr. Green starts a business with 50,000 AED cash that he saved and a 100,000 AED loan from the HSBC Bank. The bank asks him to prepare a balance sheet to see how much he own and owes (debts). On this balance sheet, the 50,000 AED is recorded as cash (or owner’s capital), and the 100,000 AED is recorded as a loan (or owner’s capital). To make the balance sheet “balance”, the 50,000 AED is also recorded as owner’s capital (or cash) and the 100,000 is recorded in owner’s capital (or loan). On the Balance sheet, an asset can be cash, inventory, and accounts receivable. A liability can be a loan. Owner’s Equity can be owner’s contribution and retained earnings. On March 7, Mr. Green decides to sell used cars. He buys a 2007 Nissan Sunny for 15,000 AED Cash. On the balance sheet, this 15,000 for the Nissan Sunny is record as inventory. To make the balance sheet “balance”, 15,000 is subtracted from cash. On March 14, Mr. Green sells his Nissay Sunny for 20,000 AED to Ms. Rosy. Ms Rosy pays 15,000 Cash and promises to pay 5,000 in 30 days. For a new balance sheet, 15,000 is added to cash and the 5,000 is recorded as an account receivable. When a business sells products, it must reduce inventory on the balance sheet. So, Mr. Green must reduce his inventory by 15,000 (cost price, not sales price). When a business sells products, it can also produce an income statement to calculate gross profits and net profits. The revenue for this sale is 20,000 AED and the cost of goods sold for this sale is 15,000. Therefore, the gross income for this sale is 20,000 – 15,000 = 5,000 AED. This amount, 5,000 AED, is transferred to the balance sheet to retained earnings. On March 10, Mr. Green paid 1,000 AED for an advertisement in The National newspaper for his Nissan Sunny. To calculate net income or profits from March 1-14, the calculation is 20,000-15,000 (Gross Income) – promotion expenses of 1,000.

7. Case Study 1: Honest Mr. Green’s Used Cars (page 1) On March 1, Mr. Green starts a business with 50,000 AED cash that he saved and a 100,000 AED loan from the HSBC Bank. Mr. Green calls his business Honest Mr. Green’s Used Cars. Prepare a balance sheet as of March 1 ______________________________ Balance Sheet ______________________________ ASSETSLIABILITIES Cash _________ Loan _______________ Total Liabilities: _______________ OWNER’S EQUITY Owner’s Capital _______________ TOTAL ASSETS: _____________ TOT. LIA. + ________________ OWN. EQ. On March 14, Mr. Green buys a 2007 Nissan Sunny for 15,000 AED cash. Prepare a balance sheet as of March 7 ______________________________ Balance Sheet ______________________________ ASSETSLIABILITIES Cash _________ Loan _______________ Inventory _________ Total Liabilities: _______________ OWNER’S EQUITY Owner’s Capital _______________ TOTAL ASSETS: _____________ TOT. LIA. + ________________ OWN. EQ.

8. Case Study 1: Honest Mr. Green’s Used Cars (page 1): ANSWERS On March 1, Mr. Green starts a business with 50,000 AED cash that he saved and a 100,000 AED loan from the HSBC Bank. Mr. Green calls his business Honest Green’s Used Cars. Prepare a balance sheet as of March 1, 2011 Honest Mr. Green’s Used Cars Balance Sheet March 1, 2011 ASSETSLIABILITIES Cash 150,000 AED Loan 100,000 AED Total Liabilities: 100,000 OWNER’S EQUITY Owner’s Capital 50,000 _________ ________ TOTAL ASSETS: 150,000 AED TOT. LIA. + 150,000 AED OWN. EQ. On March 14, Mr. Green buys a 2007 Nissan Sunny for 15,000 AED cash. Prepare a balance sheet as of March 7, 2011 Honest Mr. Green’s Used Cars Balance Sheet March 7, 2011 ASSETSLIABILITIES Cash 135,000 AED Loan 100,000 AED Inventory 15,000 Total Liabilities: 100,000 OWNER’S EQUITY Owner’s Capital 50,000 ________ ________ TOTAL ASSETS: 150,000 AED TOT. LIA. + 150,000 AED OWN. EQ.

9. Case Study 1: Honest Mr. Green’s Used Cars (page 2) On March 10, Mr. Green pays 1,000 AED for an advertisement in The National newspaper for his Nissan Sunny. On March 14, Mr. Green sells his Nissan Sunny for 20,000 AED to Ms. Rosy. She pays 15,000 Cash and promises to pay 5,000 in 30 days. Prepare an income statement for the period, March 1-14, 2011 Honest Mr. Green’s Used Cars Income Statement ______________________ Revenue ____________ Cost of Goods Sold ____________ Gross Income: ____________ Expenses: ________________ _____________ Net Income: _____________ Prepare a balance sheet as of March 1, 2011 Honest Mr. Green’s Used Cars ______________________________ ______________________________ ASSETSLIABILITIES Cash _________ Loan _______________ _______________ _________ Total Liabilities: _______________ Inventory _________ OWNER’S EQUITY Owner’s Capital _______________ Retained Earnings _______________ Total Owner’s Equity: ______________ TOTAL ASSETS: _____________ TOT. LIA. + ________________ OWN. EQ.

10. Case Study 1: Honest Mr. Green’s Used Cars (page 2): ANSWERS On March 10, Mr. Green pays 1,000 AED for an advertisement in The National newspaper for his Nissan Sunny. On March 14, Mr. Green sells his Nissan Sunny for 20,000 AED to Ms. Rosy. She pays 15,000 Cash and promises to pay 5,000 in 30 days. Prepare an income statement for the period, March 1-14, 2011 Honest Mr. Green’s Used Cars Income Statement March 1-14, 2011 Revenue 20,000 AED Cost of Goods Sold 15,000 Gross Income: 5,000 Expenses: -Promotion 1,000 Net Income: 4,000 AED Prepare a balance sheet as of March 1, 2011 Honest Mr. Green’s Used Cars Balance Sheet March 1, 2011 ASSETSLIABILITIES Cash (135+15-1) 149,000 AED Loan 100,000 AED Accounts Receivable 5,000 Total Liabilities: 100,000 Inventory (15-15) 0 OWNER’S EQUITY Owner’s Capital 50,000 Retained Earnings 4,000 Total Owner’s Equity: 54,0000 ___________ _____________ TOTAL ASSETS: 154,000 AED TOT. LIA. + 154,000 AED OWN. EQ.

11. FWC Bazaar Each group must produce a projected balance sheet and income statement for there bazaar project. Present this balance sheet and income statement to your teacher before 2:00 PM Wednesday, March 2. Projected Balance Sheet (Before the Bazaar) How much cash will you be starting with? How much will each student contribute? Prepare a starting balance sheet, using the date of March 1, 2011. Be sure you do a title in good form. How many products do you plan to make? ________units. How much do you plan to spend to make this number of products? ____________ Add this amount as “Inventory” on your Balance Sheet. Reduce __________ by this amount. Calculate the cost per unit of your product: ___________AED per unit. Projected Income Statement (Before the Bazaar) How many products do you think you will sell? ___________units What is your projected revenue? ______________AED. What is your projected Cost of Goods Sold (CoGS) _____________AED Projected Gross Income? ______________AED Expenses? ______________AED Prepare a projected income statement.

12. FWC Bazaar: Example of a Projected Balance Sheet Each group must produce a projected balance sheet and income statement for there bazaar project. Present this balance sheet and income statement to your teacher before 2:00 PM Wednesday, March 2. Projected Balance Sheet (Before the Bazaar) How much cash will you be starting with? How much will each student contribute? Example, Ms. Christina contributes 500 AED and Mr. Green contributes 300 AED. They call their business Excellent Jewelry. Excellent Jewelry Projected Balance Sheet March 1, 2011 Assets: Cash 800 Owner’s Equity: Ms. Christina, Capital 500 Mr. Green, Capital 500 How many products do you plan to make? How much money do you plan on spending to make this number of products? Example:Excellentjewellry plans on making 100 necklaces. They plan on spending 500 AED to make this number of products. Add this amount as “Inventory” on your Balance Sheet. Reduce Cash by this amount. Assets: Cash 300 Inventory 500 Calculate the cost per unit of your product: 500/100 = 5 AED per unit.

13. FWC Bazaar: Example of a Projected Balance Sheet Projected Income Statement (Before the Bazaar) How many products do you think you will sell? ___________units Example, Excellent Jewellry plans on selling all 100 necklaces. What is your projected revenue? ______________AED. Example, Excellent Jewellry plans on selling their necklaces for 15 AED. Their projected revenue is 100 x 15 = 1,500 AED What is your projected Cost of Goods Sold (CoGS)? How much does it cost Excellent Jewellry to make the 100 necklaces that they plan to sell? Cost per Unit (calculated earlier): 5 AED Cost of Goods Sold: 100 x 5 = 500 AED Projected Gross Income: Projected Revenue 1,500 AED Projected CoGS500 Projected Gross Income 1,000 AED 5. Expenses? 150 AED Excellent Jewellry plans on spending 100 AED in Printing Costs. Also, 50 AED on packaging costs.

14. FWC Bazaar: Example of a Projected Balance Sheet Projected Income Statement (Before the Bazaar) continued… 6. Prepare a projected Income Statement Excellent Jewellry Projected Income Statement April 6 FWC Bazaar Revenue 1,500 AED Cost of Goods Sold 500 Gross Income 1,000 Expenses -Printing 100 -Decorations 50 150 Net Income (Profit) 850 AED