F INANCIAL S TATEMENTS FOR A P ROPRIETORSHIP Chapter 7, Section 1

A CCOUNTING C ONCEPTS CONCEPT: Adequate Disclosure Financial statements contain all information necessary to understand a business’s financial condition. CONCEPT: Accounting Period Cycle Financial statements are always prepared at the end of the fiscal period. CONCEPT: Matching Expenses with Revenue The revenue earned and the expenses incurred to earn that revenue are reported in the same fiscal period.

Would you work for a year (or even a month) without knowing how much you would be making?

I NCOME S TATEMENT Shows financial progress over a period of time Includes revenue, expenses, and net income/loss Data obtained from Income Statement columns of the worksheet

P REPARING AN I NCOME S TATEMENT Heading 3.Date of Report 1. Name of Company 2.Name of Report 1 2 3

P REPARING AN I NCOME S TATEMENT ( CONT.) When listing amounts, the two columns are used to indicate different levels of calculations. First column is for account balances Second column is for section totals The columns are NOT debit and credit columns! Sections include: Revenue Expenses Net Income/Loss Section heading are written at the left Account titles are indented

P REPARING AN I NCOME S TATEMENT ( CONT.) 1.Write the name of the first section. 2.Write the title of the revenue account. 3.Record the balance of the account. 4.Write the name of the second section. 5.Write the title of each expense account Record the balance of each account. 7.Rule a single line. 8.Write Total Expenses. 9.Record total expenses. 10.Rule a single line. 11.Calculate net income. 12.Write Net Income. 13.Record net income. 14.Rule double lines. 6 10

C OMPONENT P ERCENTAGES Percentage relationship between one financial statement item and the total that includes that item Based on net sales Total Expenses Percentage Total expenses ÷ Net sales Net Income/Loss Percentage Net Income/Loss ÷ Net sales

C OMPLETED I NCOME S TATEMENT

I NCOME S TATEMENT WITH T WO R EVENUE A CCOUNTS AND A N ET L OSS 1 Revenue 3 Revenue amounts 2 Account titles 6 Net Loss 7 Record Net Loss (negative amounts are written in parentheses) 4 Total Revenue 5 Total of revenue