Required Reading: P

 The Balance Sheet was the first formal financial statement that we have examined.  The balance sheet is known as a “statement of financial position” and lists the assets, liabilities and owner’s equity in a business.  A balance sheet useful as a “snapshot” of the business but it does not provide all of the information required by stakeholders.

 Revenue, Expenses and Drawings.  It does not tell you if the business is making money or losing money.

 The income statement is a “statement of change in financial position”.  While the balance sheet is like a picture, an income statement is like a movie.  A company can be asset rich and appear financially healthy on a balance sheet. However, if it lacks revenue or if expenses exceed revenues, the business is not making money.

Heading: Who, What, When. Notice that it is for a time period, not a specific day. Revenue Section. Listed in outside column. Expenses Section. Listed in the inner column Single rule at end of expense items. Total expenses placed in outer column. Double rule under Net Income.

 Remember that a full list of GAAP’s is on page 755 of your text. Be familiar with them!  Time period concept – accounting takes place over specific time periods called fiscal periods.  Matching principle – expenses must be recorded in the same period as the revenue they helped to earn. (You can’t record all of your expenses in one year to artificially increase net income in the next.)

 It is customary to number all of the accounts in a ledger. Our text uses the following system:  Assets –  Liabilities  Capital and Drawings –  Revenues  Expenses –