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Lesson 1: Introduction to Financial Statements
Financial Information
Many pages in this lesson, and throughout the course, will instruct you to read certain pages from your textbook. The readings will be applicable to the lesson page on which they appear. In this lesson, the concepts from the textbook will be applied to a simple fictional business.
Suppose Andy and Nick are high school students who decide to start a lawn care business to earn money during the summer. Each of them has $500 to invest in the business, and at the end of the summer they'll split the profits from their work. They begin by listing the items they'll need:
- lawn mower,
- grass trimmer,
- vehicle with trailer, and
- various small tools and supplies: gasoline, rakes, gloves, ear protection, fertilizer.
With their total of $1,000 cash, they can purchase enough supplies to get started and all of the equipment except the vehicle and trailer. Nick’s dad is willing to lend them his small pickup truck and trailer as long as they pay for the gas and return the truck and trailer in the same condition, except for ordinary wear and tear. If the truck or trailer is damaged, they'll need to pay for any repairs not covered by insurance.
Think about the financial information Andy and Nick have already generated and will generate as they conduct their lawn care services:
- They're each contributing $500 and decide to open a checking account for the business. The bank account has a balance of $1,000 after their first deposit.
- They have a truck and trailer, but these items are borrowed; the business doesn't own them. They decide to look up the value of these items and note that they're currently worth $8,000.
- They purchase the lawn mower and trimmer for $310. They'll purchase the small tools and supplies as needed.
- They'll be collecting payment for their services, based on the size of each customer’s lawn and the level of service (mowing only; mowing and trimming; or mowing, trimming, and fertilizing).