Chapter 7 Financial Statements for a Proprietorship
Introduction Read Reporting Financial Information on page 180-185.
7-1 Preparing an Income Statement An income statement reports financial information over a specific period of time. Expenses are the amounts a business pays to operate the business and earn revenue.
Information Needed to Prepare an Income Statement Information obtained for the income statement is found in two places. Account titles are found on the worksheets account titles section. Account balances are found under the income statement columns.
INCOME STATEMENT INFORMATION ON A WORK SHEET
Income Statements The income statement can be broken down into four parts. Heading - answers Who? What? When? Revenue - Sales Expenses Net income or loss. The income statement is broken into two columns (NOT DEBIT AND CREDIT). Account balances are listed in the first column and the totals in the second. The net income/loss in the income statement should be verified with the net income/loss in the worksheet.
Heading of an Income Statement The name of the company - centered in the middle on the top line. Name of the report - Income Statement - centered in the middle on the second line. The Date of the report - for month ended on the 3rd line and centered.
HEADING OF AN INCOME STATEMENT 2 1 3 1. Center the name of the company on the first line. 2. Center the name of the report on the second line. 3. Center the date of the report on the third line.
Preparing the Revenue, Expenses, and Net Income Sections Write Revenue on line 1. Enter in the revenue account Sales on the next line and indent it. Record the balance for sales in the 2nd column. Enter in the section name Expenses. List and indent all Expenses. Record there balances in the first column. Enter sections name Total Expenses Record the balance for Total Expenses in the second column. Enter in Section name Net Income/Loss Subtract Expenses from Sales.
REVENUE, EXPENSES, AND NET INCOME SECTIONS OF AN INCOME STATEMENT 7 Single line Revenue Expenses 1 4 2 Account title 3 Revenue amount Account titles 5 6 Expense amount Total expenses 8 9 Total of expenses 12 Net Income 14 Double lines 13 Record net income 11 Single line 10 Calculate net income
Component Percentage Component Percentage - the percentage relationship between one financial statement item and the total that includes that item. Sales - always a 100% Total Expenses - Not greater than 55% Net Income - Not less than 45%
COMPONENT PERCENTAGE ANALYSIS OF AN INCOME STATEMENT
Income Statement with Two Sources of Revenue Page 185. Revenue Col #1 Col #2 Sales -Lessons XXXX Sales - Repairs XXXX Total Revenue XXXX Net Loss = Expenses are larger than Revenue. Expenses - % is greater than 100% Net Loss - has a negative percentage.
INCOME STATEMENT WITH TWO SOURCES OF REVENUE AND A NET LOSS 5 Total Revenue Revenue Account titles 1 2 3 Revenue amounts 4 Total of revenue Net Loss 6 7 Record Net Loss
Section 7.2 Read pages 187-190. Balance Sheets report information a specific date. The information for a balance sheet comes from the balance sheet columns of the Worksheet. Balance sheet has a heading similar to the income statement.
Balance Sheet Heading The name of the company - centered in the middle on the top line. Name of the report - Income Statement - centered in the middle on the second line. The Date of the report - an exact date is entered on the 3rd line and centered.
HEADING OF A BALANCE SHEET 2 3 1 1. Center the name of the company on the first line. 2. Center the name of the report on the second line. 3. Center the date of the report on the third line.
BALANCE SHEET
Preparing a Balance Sheet Accounting Equation = Assets = Liabilities + Owners Equity Center the word Assets in the middle of the left column. List all assets and their balances Center the word Liabilities in the right column. Enter all liabilities and their balances. Enter Total Liabilities and total all liabilities. Enter in Owners Equity (Centered) after Total Liabilities. Enter owners Capital account and its balance. Total Assets needs to be on the same line as Total Liabilities and Owners Equity. Total Up all columns. Total Assets = Total Liabilities and Owners Equity.
ASSETS AND LIABILITIES SECTIONS OF A BALANCE SHEET Liability amounts 6 Account titles 5 1 Assets 4 Liabilities 8 Total Liabilities 2 Account titles 3 Asset amounts Single line 7 Total of liabilities 9
Calculating New Capital Balance Capital Account Balance XXXX Plus Bet Income XXXX Minus Drawing Account XXXX Equals Current Capital BalanceXXXX
OWNER S EQUITY REPORTED IN DETAIL ON A BALANCE SHEET 3 Net Income Current capital amount 8 1 Beginning capital Difference 6 Beginning capital amount 2 7 Ending capital 5 Single line 4 Drawing 9 Total Liabilities and Owner s Equity
OWNER S EQUITY SECTION OF A BALANCE SHEET 1 Owner s Equity 4 Single line 2 Account title 3 Capital amount Total of assets 6 5 Total Assets 7 Total Liab. and Owner s Eq. Compare totals 9 10 Double lines 8 Total of Liabilities and Owner s Equity