Note: The preparation of the financial statements is the seventh step in the 9-step accounting cycle. We will take a look at them first before getting into the whole process for you to have a picture of what we are trying to produce in an accounting system.
The financial statements are the end-product reports of accounting.
The preparation of the financial statements is the summarizing phase of accounting.
A complete set of financial statements is made up of five components: an Income Statement, a Statement of Changes in Equity, a Balance Sheet, a Statement of Cash Flows, and Notes to Financial Statements.
This chapter of the Accounting 101: The Basics course presents the components of a financial statements package. The lessons here focus on a service-type sole proprietorship business.
refer to a specific set of reports produced in an entity's accounting system. The objective of these reports is to provide information about the entity. A complete set includes... Read more..
The Income Statement is also referred to as Profit and Loss (P&L
) Statement. It shows an entity's results of operations
for a particular period of time. The income statement presents the period's income and expenses, and the resulting net income or loss. Read more..
Capital is affected by four elements. It is increased by owner contributions and income, and decreased by withdrawals and expenses. The Statement of Owner's Equity shows the movement in capital as a result of these elements. Read more..
A Balance Sheet shows the financial position or condition of a company of a certain date. Hence, it is also called Statement of Financial Position. The Balance Sheet presents the total resources owned and controlled by the company (assets) and the claims against them (liabilities and capital). Read more..
Accountants follow the accrual basis in measuring income and expenses. However, some users of accounting information are interested in the cash transactions of the company; hence the need to present a Statement of Cash Flows. Read more..