Financial Statements for a Sole Proprietorship

balance sheet

a financial statement that is a report of the final balances in all asset, liability, and owner's equity accounts in the end of the fiscal period

statement of changes in owner's equity

a financial statement that is prepared to summarize the effects on the capital account of the various business transactions that occurred during the fiscal period

true

a net income will increase the owner's capital account

false

a net loss and withdrawals both cause an increase to capital

current assets

are assets used up or converted to cash during the normal operating cycle of the business

current liabilities

are the debts of the business that must be paid within the next accounting period

current ratio & quick ratio (frame)

business has $______ in liquid assets for each $1 of current liabilities

short-term liquid assets

cash and account receivables

calculating quick ratio

cash and receivables divided by current liabilities

report form

classifications of balance sheet accounts are shown one under the other

ratio analysis

comparing two amounts on a financial statement or the process of evaluating the relationship between various amounts in the financial statements

calculating current ratio

current assets divided by current liabilities

calculating working capital

current assets minus current liabilities

calculating return on sales

dividing net income by sales

return on sales (frame)

each dollar of sales produced _______ cents of profit

balance sheet sections

heading (month, end day, year), assets, total assets, liabilities, total liabilities, owner's equity (capital), total liabilities and capital, double rule (assets included if equal)

statement of changes sections

heading, beginning capital, add:, total increase in capital, subtotal, less:, total decrease in capital, ending capital, double rule

income statement sections

heading, revenue:, total revenue, expenses:, total expenses, net income/net loss, double rule

primary financial statements for a sole proprietorship

income statement and balance sheet

expenses

income statement reports revenue and...

liquidity ratio

is a measure of a business's ability to pay its current debts as they become due and to provide for unexpected needs of cash

quick ratio

is a measure of the relationship between short-term asset and current liabilities

statement of changes in owner's equity and balance sheet section of the worksheet

is completed as a support document for the balance sheet

net income or net loss

is reported on the income statement

work sheet

is the source of information reported on financial statements

net income

occurs when the total revenue is greater than total expenses

heading

of a financial statement answers questions of who, what, when

profitability

ratios evaluate earnings performance during an accounting period

income statement

reports net income or net loss

financial statements

reports prepared to summarize the changes resulting from business transactions that have occurred during a fiscal period

net loss

results when expenses are larger than revenue

the rule

rule, label, calculate

financial statements

summarize changes that result from business transactions during an accounting period

statement of changes in owner's equity

summarizes changes in the capital account

statement of cash flows

summarizes the following information: the amount of cash the business took in, sources of cash, amount of cash the business paid out, and uses of cash

working capital

the amount by which current assets exceed current liabilities

work sheet

the amount of net income or net loss reported on the income statement must match the amount shown on the...

true

the balance sheet contains only the permanent general ledger accounts

false

the balance sheet is prepared before the statement of changes in owner's equity

true

the balance sheet is prepared from the information in the Balance Sheet section of the work sheet and from the statement of changes in owner's equity

on a specific date

the balance sheet reports financial information on...

true

the balance sheet reports the final balances of the permanent accounts at the end of the fiscal period

true

the balance sheet represents the basic accounting equation

false

the changes in the Cash in Bank account are reported in the statement of changes in owner's equity

income statement

the financial statement that reports the net income or net loss for the fiscal period it covers

false

the heading is the same on all three financial statements

false

the income statement represents the basic accounting equation

income statement section of the work sheet

the information needed to prepare the income statement comes from the...

false

the information on the statement of changes in owner's equity is used in preparing the income statement

true

the primary financial statements prepared for a sole proprietorship are the income statement and the balance sheet

false

the primary financial statements prepared for a sole proprietorship are the income statement and the statement of changes in owner's equity

return on sales

the ratio that is used to examine the portion of each sales dollar that represents profit

current ratio

the relationship between current assets and current liabilities

heading

the section in a financial statement that answers the questions: who, what, and when

false

the sections listed on the income statement are the heading, the revenue for the period, the capital for the period, and the net income or loss for the period

ending capital in statement of changes in owner's equity

the source of information for completing the balance sheet comes from the balance sheet section of the worksheet and the...

Income Statement section of the work sheet

the source of information for completing the income statement

false

the statement of changes in owner's equity is completed as a supporting document for the income statement

true

the statement of changes in owner's equity is prepared before the balance sheet

false

the statement of changes in owner's equity shows the changes in the Cash in Bank account

true

the statement of changes in owner's equity summarizes the effects on the capital account of the various business transactions that occurred during the period

false

the trial balance section of the worksheet provides the information used in preparing the income statment

true

the wording of the date line in the heading on the income statement is important

profitability ratios

used to evaluate the earnings performance of the business during the accounting period

ending capital

what does the balance sheet use from the statement of changes in owner's equity

net income or net loss

what does the statement of changes in owner's equity use from the income statement