WELCOME TO THE CREDIT ANALYSTDEVELOPMENT PROGRAM

Credit Analysts arean integral partof Credit Administration in the BankingIndustry. The analyst's role is to analyze and summarizethe financialcondition of an entityto determine the debt repayment capability of the entity. In doing so, the analystconsiders bothfinancial and non-financialfactors that may impact the ability to repay.

Being a Credit Analyst is a universally recognized and valuable skill to possess in the banking industrya nd could lead to managementpositions if performed effectively. It is a great skill for those who choose to become a commercial / consumer lender or choose to become a career Credit Analyst.

Whatk ey personal characteristics do good Credit Analysts possess? Below is a list of characteristicsI have witnessed in effective Credit Analysts:

► SharpEye for Details ► VeryAnalytical ► CuriousI Inquisitive ► Good Communicator ► Assertive ► Researcher ► People Skills ► Thick Skin ► Willing to Learn

There are professional skills good Credit Analysts should possess also. According to an article presented in a Risk Management Association Journal of Commercial Lending on the skills of "Top-Notch" Credit Analysts, they:

► Are Well Versed in the Details of

► Keep up withChanges in Accounting Practices

► Are Competent Writers andCommunicators

► Continue Their Self-Educationas OpportunitiesPresent Themselves

► Like Having Control Over All of Their Analysis

Being well versed in the details of Accounting is a major requirement for Credit Analysts to achieve. Accounting is a highly technical andvast fieldof study and, the cornerstonefor analyzing financialstatements and taxreturns.

BANKERS INSIGHT GROUP, LLC 1 Improved analytical skills starts with having a good working knowledge of accounting. Once you understand how financial statements are constructed, it makes it easier for you to analyze and understand the results.

After all, would you consider taking your car in for repairs to an auto mechanic who tells you, "I would love to fix your car, but I don't know how the engine works .... " How can you analyze financial statements and tax returns if you do not know how they are constructed?

ACCOUNTING DEFINED

Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by the users of the information. It is the "language" employed to communicate financial information and is primarily concerned with the design of the system of records, the preparation of reports based on the recorded data, and the interpretation of the reports.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES {GAAP): GAAP is the rules financial must follow when entering accounting transactions and preparing financial statements. Financial accountants cannot just throw numbers on the , , or statement of flows; Rather, a level playing field must exist between so that the individuals reading the financial statements can compare one company to another.

THE ACCOUNTING EQUATION

Assets = Liabilities + Stockholders'

The Accounting Equation simply states that all on the balance sheet are supported by a combination of funds borrowed or owed to creditors plus the amount of funds invested into the entity by the owners.

After each economic event is recorded into the records of an economic entity, the Accounting Equation must always balance after the transaction is documented. This will ensure that the Balance Sheet Assets will equal the Liabilities and Stockholders' Equity including the results of the Income Statement, which should be reflected in Retained Earnings.

Bottom Line: "The equation must always be in balance".

This Pre-Course Case Study will demonstrate how financial statements are constructed from journal entries into a full set of financial statements. To aid in the completion of this Case Study,

BAN KERS iNSIGHT GROU P, LLC 2 the Rules of shown below should be reviewed. These rules apply to all Economic Entities without any exceptions.

After becoming familiar with the Rules of Debits and Credits Chart, please proceed to the Case Study and follow the instructions.

RULES OF DEBITS AND CREDITS

Assets = Liabilities + Stockholders' Equity

Stockholders' Equity Accounts Liabili Accounts Accounts

Debit* Credit Debit Credit* Debit Credit*

Debit for Credit for Debit for Credit for Debit for Credit for Increase Decrease Decrease Increase Decrease Increase

Cost and Ex ense Accounts Accounts Debit* Credit Debit Credit* Debit for Credit for Debit for Credit for Increase Decrease Decrease Increase

DEBITS CREDITS

Increase assets Decrease assets Decrease liabilities Increase liabilities Decrease stockholders' equity Increase stockholders' equity Decrease Increase revenues Increase Decrease expenses Increase Decrease dividends

*Normal balance

BANKERS INSIGHT GROUP, LLC 3 CASE STUDY

These transactions occurred recently for Bulldog-Tech Manufacturing, Inc. Please record each transaction utilizing the enclosed journal worksheets. The first journal worksheet contains accounts representing the asset section of the balance sheet while the second journal worksheet represents accounts found on the liabilities, capital and income statement portion of the balance sheet. As you read each transaction below, please record the financial event onto the worksheet insuring you are debiting and crediting the proper accounts. Please Note that you will not see every account on the journal worksheet. For example, you will not see an accounts for Interest or Rent therefore, transactions involving these accounts should be placed in the Operating Expense column of the journal worksheet. As you enter transactions, indicate debits and credits utilizing either a plus or minus sign. Also, be mindful of the Accounting Equation (Assets = Liabilities + Net Worth), which means that each recorded transaction should result in this Equation remaining in balance. After all transactions are entered, total each column at the bottom of the worksheet journals for each account and transfer the the data into the 2019 column of the balance sheet and income statement for the company. Then, repeat entering the data into the 2019 column assuming the company utilizes a LIFO costing method. The goal of this case study is to demonstrate how financial statements are created and creating a balance sheet that balances (Remember: A = L + NW). Good Luck!

A Purchased 400 units of inventory @ $90 each on account $36,000 B Made payment on Credit Line ($10,000 Prin. & $5,000 Int) $15,000 C Purchased 300 units of Inventory @ $95 each on account $28,500 D Sold 1,000 units @ $120 per unit on account. The Company utilizes the FIFO (First In First Out) inventory costing method $120,000 E of Building, Machinery and Equipment $14,800 F Management established an Allowance for Doubtful Accounts $10,000 G Paid principal payment of Long Term Debt $5,833 H Received cash from customer's account $65,000 I Paid creditors for inventory purchased $23,000 J Paid license taxes in advance $4,800 K Incurred Rent Expense but did not pay it $3,330 L Charged off account due from ABC Company $5,000 M Sold equipment for $9,000 cash, which is $2,000 in excess of its , Accumulated Dep is $7,000 Calculate N Declared a but did not pay it $30,000 O Sold 1,000 shares of Common Stock at a price of $5 over the Stock's Par Value of $5 Calculate P Sold 500 units @ $120 per unit of which one-half was paid in Cash and the other half on account. FIFO Inventory is still being utilized $60,000 Q Paid one-half of the Dividend Declared $15,000 R Purchased three acres of land for $125,000 of which $10,000 in principal is due in one year and the balance over one year A Downpayment of $25,000 was required $125,000

What would be the impact upon the Income Statement and Balance Sheet if BullDog-Tech utilized a LIFO Inventory Costing Method? Prepare an undated Income Statement and Balance Sheet assuming a LIFO Inventory Costing Method is utilized and place the results on the attached financial statements on pages 8 & 9. 4 BULLDOG-TECH MANUFACTURING ASSETS

Accounts (Allowance) Land & Machinery & Autos & Furniture & Accumul. Prepaid Cash Receivable For Doubt. Inventory Building Equipment Truck Fixtures Depreciatio Expenses

BEG 100,000 32,000 85,600 550,000 275,500 7,500 5,000 10,000 1,065,600

A B C D E F G H I J K L M N O P - Q R

END

5 BULLDOG-TECH MANUFACTURING LIABILITIES, CAPITAL & INCOME STATEMENT

Accounts Notes Accrued Current Port Dividend Long-Term Revenue & Cost of Operating Payable Payable Expenses of Long T/D Payable Debt Capital Gains Goods Sold Expenses

BEG 67,000 50,000 23,000 70,000 549,000 306,600 1,065,600

A B C D E F G H I J K L M N O P Q R

END

6 Bulldog-Tech Manufacturing, Inc. Balance Sheet As of December 31

ASSETS

2018 % 2019 CURRENT ASSETS:

Cash $ 100,000 Accounts Receivable, Net 32,000 Inventory (1,000 units @ $85.60 each) 85,600 Prepaid Expenses 10,000 Notes Receivable - Current Portion 0

Total Current Assets 227,600

PROPERTY, PLANT AND EQUIPMENT

Land & Building 550,000 Machinery & Equipment 275,500 Autos & Trucks 7,500 Office Furniture & Fixtures 5,000 838,000

Less Accumulated Depreciation 0

Net Property, Plant & Equipment 838,000

Total Assets 1,065,600

LIABILITIES Notes Payable - Bank 50,000 Accounts Payable 67,000 Current Portion of Long Term Debt 70,000 Accrued Expenses 23,000 Dividend Payable Total Current Liabilities 210,000

Long Term Debt 549,000

Total Liabilities $ 759,000

NET WORTH Common Stock 150,000 Capital Surplus Retained Earnings 156,600 Total Net Worth 306,600 -

Total Liabilities and Net Worth $ 1,065,600 $ - 7 Bulldog-Tech Manufacturing, Inc. Balance Sheet As of December 31 LIFO METHOD ASSETS

2018 % 2019 CURRENT ASSETS:

Cash $ 100,000 Accounts Receivable, Net 32,000 Inventory (1,000 units @ $85.60 each) 85,600 Prepaid Expenses 10,000 Notes Receivable - Current Portion 0

Total Current Assets 227,600

PROPERTY, PLANT AND EQUIPMENT

Land & Building 550,000 Machinery & Equipment 275,500 Autos & Trucks 7,500 Office Furniture & Fixtures 5,000 838,000

Less Accumulated Depreciation 0

Net Property, Plant & Equipment 838,000

Total Assets 1,065,600

LIABILITIES Notes Payable - Bank 50,000 Accounts Payable 67,000 Current Portion of Long Term Debt 70,000 Accrued Expenses 23,000 Dividend Payable Total Current Liabilities 210,000

Long Term Debt 549,000

Total Liabilities $ 759,000

NET WORTH Common Stock 150,000 Capital Surplus Retained Earnings 156,600 Total Net Worth 306,600 -

Total Liabilities and Net Worth $ 1,065,600 $ - 8 Bulldog-Tech Manufacturing, Inc. Statement of Operations and Retained Earnings For the Years Ended December 31,

LIFO METHOD 2019 2019

Sales Gross on

Operating Expenses: Selling Expenses Administrative Expenses

Total Operating Expenses Income From Operations

Other Income and (Expense)

Net Income

9