1. Chapter 9
Financial Statements

2. Preparing Financial Statements
Seventh Step in the Accounting Cycle:
provide information for business decisions
owners
managers
investors
prepared in ink or on computer

3. financial statements sole proprietorship
income statement
shows net income or net loss for period
statement of changes in owner’s equity
summarizes changes in owner’s capital
as result of business transactions during period
balance sheet
reports on assets and financial claims to those assets
(A=L+OE)
statement of cash flows

4. The Income Statement shows details about profitability Timeframe:
income made or loss incurred in period
Timeframe:
for a specific period of time
Source of Information:
Income Statement Section of the Work Sheet

6. Statement of Changes in Owner’s Equity
tracks increase/decrease in owner’s equity
financial claims to assets of business

8. Stmt of Chng in OE Timeframe: Sources of Information:
for a specific period
Sources of Information:
Capital Account in General Ledger
beginning capital and investments during period
Income Statement
net income of net loss
Work Sheet
withdrawals by owner

9. Trial Balance Capital – Investments During the Period Beginning Capital
Need to know ending capital in order to complete the next financial statement: the Balance Sheet.

10. Balance Sheet report of balances in all permanent accounts
assets, liabilities, and capital
represents basic accounting equation;
A=L+OE

12. Sources of Information:
Timeframe:
as of a specific date
Sources of Information:
Balance Sheet Section of the Work Sheet
Statement of Changes in OE.
Report Form:
Account classifications are shown one under the other with section titles centered

13. Ratio Analysis comparison of two amounts on financial statement
evaluation of relationship between these amounts
Used to determine
financial strength
activity
debt-paying ability

14. Return on Sales:
Determine the portion of each sales dollar that represents profit.
Net Income / Sales = Return on Sales 

15. Current Ratio:
Relationship between current assets and current liabilities.
Current Assets / Current Liabilities = Current Ratio 

16. Quick Ratio:
The relationship between short term assets and current liabilities.
Cash and Receivables / Current Liabilities = Quick Ratio