Week One Checkpoint

Financial Statements

Susan Fox

ACC/225

November 18, 2011

Lori Falter

Financial Statements

There are four major financial statements on which to record a company’s transactions and other data. They will be explained in the following paragraphs. Each one ties into the other for the purpose of accurately reporting the growth or failure of a company. Each statement heading identifies the company, the statement title, and the date or time period.

The first is an Income Statement, which describes a company’s revenues and expenses,

along with the resulting net income or loss over a certain time period due to earnings. Revenues

are reported first on the income statement, then the expenses. The expenses reflect the cost to

earn the revenue. The net income (or loss) is reported at the bottom of the statement. This is

also called the earnings or profit and shows what the company earned for the month. The net

income is used to compute the equity.

The next statement is the Statement of Owner’s Equity, which reports how the equity

changes over the reporting period. This statement shows beginning capital, events that increase

it (owner investments and net income), and events that decrease it (withdrawals and net loss).

Ending capital is computed in this statement and is carried over and reported on the balance

sheet. A company reports the beginning balance as the end of the prior reporting period. This

links the income statement to the statement of owner’s equity. In other words, it shows the

beginning capital, plus the owner’s investments, plus the net income, minus withdrawals to equal

the ending capital.

Next comes the Balance Sheet, which shows the financial condition at the close of

business on the last day of the month. The left side shows the assets: cash, equipment, and

supplies. The right side shows the liabilities; anything owed to a creditor. The equity balance

from the...