 Balance Sheet  Income Statement  Owner’s Equity Statement.

 The Balance Sheet and the Income Statement are financial statements ◦ Balance Sheet ◦ Balance Sheet: Details the condition of the business on a specific date ome Statement ◦ Income Statement: Details revenue and expense transactions over a specific time  Balance Sheet: Assets, Liabilities and Owner’s Equity ◦ Provides a “snapshot” of the financial condition of a business at a given point in time. ◦ Remember - Accounting Equation must always be in balance.  Assets = Liabilities + Owner’s Equity (Owners Equity represents the Net Worth of the owner).

 Income Statement: Revenues & Expenses ◦ Provides information related to the amount of Revenues and Expenses incurred for a given period of time (fiscal period).  One month in the case of the sample case ◦ (Revenue minus Expenses = Net Income (profit) or Net Loss)  Question: Who is interested in reviewing these financial statements and why?  Financial statements are often reviewed by and distributed to: ◦ Owners, Creditors, Investors, Managers, and sometimes Customers.  Should always be presented in a professional format.

 Use the completed eight-column worksheet to prepare the Balance Sheet and Income Statement ◦ See completed Balance Sheet & Income Statement solutions

 Reflects the changes to the equity in the business over a given period of time.  Essential elements ◦, Capital balance from the beginning of the fiscal period ◦ Add Net Income (subtract a loss) ◦ Subtract withdrawals made by the owner ◦ Add additional investments made by the owner

 Use the completed eight-column worksheet to prepare the Owner’s Equity Statement ◦ See completed Owner’s Equity Statement solutions

 Review the completed financial statements.  Is this business a good candidate for a business loan? ◦ Why / why not? ◦ Would you invest your savings into this business? ◦ What else needs to be known?  Determine missing transactions not accounted for.  Discuss “Vertical” and “Horizontal” analysis.  Vertical: Each amount on a financial statement as a percentage of another item. Allows comparison to other businesses.  Horizontal: Compares financial statements across fiscal periods. Is also referred to as “Trend Analysis.”

 Understanding the basics of double entry accounting will help you with future entrepreneurial plans or business projects.  We hope this project enables you with a better grasp of financial management – the backbone of any effective business plan. The End