Financial Statements

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Chapter 9

• Financial Statements

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Preparing Financial Statements

• Seventh Step in the Accounting Cycle
• provide information for business decisions
• owners
• managers
• investors
• prepared in ink or on computer

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financial statements sole proprietorship

• income statement
• shows net income or net loss for period
• statement of changes in owners equity
• summarizes changes in owners capital
• as result of business transactions during period
• balance sheet
• reports on assets and financial claims to those
  assets
• (ALOE)
• statement of cash flows

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The Income Statement

• shows details about profitability
• income made or loss incurred in period
• Timeframe
• for a specific period of time
• Source of Information
• Income Statement Section of the Work Sheet

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Statement of Changes in Owners Equity

• tracks increase/decrease in owners equity
• financial claims to assets of business

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Stmt of Chng in OE

• Timeframe
• for a specific period
• Sources of Information
• Capital Account in General Ledger
• beginning capital and investments during period
• Income Statement
• net income of net loss
• Work Sheet
• withdrawals by owner

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• Trial Balance Capital Investments During
  the Period---------------------------------------
  -------- Beginning Capital
• Need to know ending capital in order to complete
  the next financial statement the Balance Sheet.

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Balance Sheet

• report of balances in all permanent accounts
• assets, liabilities, and capital
• represents basic accounting equation
• ALOE

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• Timeframe
• as of a specific date
• Sources of Information
• Balance Sheet Section of the Work Sheet
• Statement of Changes in OE.
• Report Form
• Account classifications are shown one under the
  other with section titles centered

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Ratio Analysis

• comparison of two amounts on financial statement
  
• evaluation of relationship between these amounts
• Used to determine
• financial strength
• activity
• debt-paying ability

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Return on Sales

• Determine the portion of each sales dollar that
  represents profit.
• Net Income / Sales Return on Sales 

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Current Ratio

• Relationship between current assets and current
  liabilities.
• Current Assets / Current Liabilities Current
  Ratio 

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Quick Ratio

• The relationship between short term assets and
  current liabilities.
• Cash and Receivables / Current Liabilities
  Quick Ratio