Preparing Financial Statements Section 20.2

Objectives Describes the items of information included on each financial statement. Identify ongoing accounting activities.

Types of Financial Statements Primary Financial Statements Income statement Aka: profit and loss statement or P&L statement Balance Sheet Statement Cash Flow is also commonly used.

Income Statement A report of the revenue, expenses, and net income or loss for the accounting period. Revenue – Expenses = Net Income/Loss Covers a period of time

Assets = Liabilities + Owner’s Equity Balance Sheet A report of the final balances of all asset, liability, and owner’s equity accounts at the end of an accounting period. Presents a business’s financial position on a specific date. Reports what a business owns, owes, and is worth. Three Sections: Assets, Liability, & Owner’s Equity Assets = Liabilities + Owner’s Equity

Statement of Cash Flow Reports how much cash your business took in and where the cash went. A major consideration when considering borrowing money Potential investors and lenders want to see cash flowing into your business in a constant, positive manner

Ongoing Accounting Activities Weekly Accounting Activities Posting to the General Ledger: help keep acct. balances accurate Keeping track of Payments and Receivables: ensures bills are paid on time Acct. receivables should be categorized, to determine those that are current or past due by 30, 60, and 90 days. Helps with deciding whether to extend credit. Keeping Payroll Records Keeping Tax Records Filing Records

Ongoing Accounting Activities Monthly Accounting Activities Preparing Financial Statements Paying Payroll Tax Deposits Reconciling the Bank Statement: verify the accuracy of banking activities Balancing the Checkbook Balancing & Replenishing the Petty Cash Fund

Technology and Other Options Recording, summarizing, and reporting financial information can be an extremely time-consuming activity Options for Meeting Accting. Needs Hiring Professionals Bookkeeper: can handle all the forms, journal entries, and payroll CPA (Certified Public Accountant): audit books & prepare tax returns Balancing the Checkbook Automated Accounting software