ACCT 4A(1.5)(How Do You Prepare Financial Statements?)

Order Financial Statements Must Be Prepared In

Income Statement Statement of Retained Earnings Balance Sheet Statement of Cash Flows

Balance Sheet

Lists a business entity's assets, liabilities, and stockholders' equity as of a specific date, usually the end of a month, quarter, or year. Assets are listed in the left. Each account is listed separately with cash first and then totaled. Liabilities are listed separately(account by account) and then totaled. The liabilities that need to be paid first are on top.(LEFT) Equity is under liabilities. You begin with common stock and then retained earnings. Each side should be equal to the other. Assets = Liabilities + Equity

Statement of Cash Flow

Reports the cash coming in (positive amounts) and the cash going out (negative amounts) during a period. It only reports transactions that involve cash because it reports the net increase or decrease in cash during the period and the ending cash balance. If a transaction does not involve cash, such as the purchase of supplies on account, it will not be reported on the statement of cash flows. Divided into the following three components: - Operation Activities(cash receipts from services) - Investing Activities(buying and selling land and equipment) - Financing Activities(issuing common stock&payment of dividends)

Income Statement

The income statement (also called the statement of earnings) presents a summary of a business entity's revenues and expenses for a period of time, such as a month, quarter, or year. The income statement tells us whether the business enjoyed net income or suffered a net loss. Only two accounts are reported here: revenues and expenses Revenue accounts are always listed first and then subtotaled. Next come the expense accounts listed from greatest to smallest. Finally, net income/loss is finally reported. Revenues - Expenses = Net Income/Loss

Statement of Retained Earnings

The statement of retained earnings shows the changes in retained earnings for a business entity during a time period, such as a month, quarter, or year. You begin with retained earning of the "beginning period," then comes net income/loss from the Income Statement, finally subtracting dividends to reach the retained earning at the "end of period." If there were no dividends paid out, then list NOTHING! If there was a net loss there will be no dividends EVER! Beg. Earnings + Net Income/Loss - Dividends = Final Earnings