1. Preparing Financial Statements
Section 20.2

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

3. 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.

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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