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How to Prepare Financial Statements

Checked for updates, April 2022.
3 Lessons

Components of Financial Statements

A complete set of financial statements comprises: (1) an income statement, recent standards now require a statement of comprehensive income, (2) a statement of changes in equity, (3) a balance sheet, also known as statement of financial position, (4) a statement of cash flows, and (5) notes to financial statements or supplementary notes.

Image link to Income Statement Preparation
Lesson 1

How to Prepare an Income Statement

An income statement contains information about a company's revenues and expenses and the resulting net income. Net income is computed by deducting all expenses from all revenues.
Image link to Statement of Equity Preparation
Lesson 2

How to Prepare a Statement of Owner's Equity

The "Statement of Owner's Equity", or "Statement of Changes in Owner's Equity", summarizes the items affecting the capital account of a sole proprietorship business.
Image link to Balance Sheet Preparation
Lesson 3

How to Make a Balance Sheet

The "Balance Sheet", also known as "Statement of Financial Position", shows a company's financial condition as of a certain date. Financial condition is presented by reporting how much assets the company owns, how much liabilities it owes to others, and its equity or capital.
Chapter Contents

Chapter VI provides step-by-step tutorials in preparing financial statements. We will focus on the first three financial statements, and for a service type business.

The preparation of financial statements is easy once you've mastered the accounting elements and know the different accounts that comprise them. Businesses today have automated accounting systems wherein financial statements can be prepared with a few clicks of a button.

However, as accountants we need to really understand how they are made. This way, we will be able to interpret and appreciate financial statements better.

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APA format
How to Prepare Financial Statements (2022). Accountingverse.
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