1. Financial Statements for a Sole Proprietorship Making Accounting Relevant Financial statements provide information to owners and managers about how the business is changing as a result of operations. Making Accounting Relevant Financial statements provide information to owners and managers about how the business is changing as a result of operations. How might these financial reports help the owners and managers make business decisions?

2. Section 1The Income Statement What You’ll Learn  Why financial statements are important for business decisions.  The purpose of the income statement.  How to prepare an income statement. What You’ll Learn  Why financial statements are important for business decisions.  The purpose of the income statement.  How to prepare an income statement.

3. Why It’s Important Financial statements provide the essential financial information necessary for sound management decisions. The income statement communicates important details about profitability to a business owner. Why It’s Important Financial statements provide the essential financial information necessary for sound management decisions. The income statement communicates important details about profitability to a business owner. Section 1The Income Statement (cont'd.) Key Terms  financial statements  income statement Key Terms  financial statements  income statement

4. The Seventh Step in the Accounting Cycle: Financial Statements The primary financial statements prepared for a sole proprietorship are the income statement and the balance sheet. A third statement, the statement of changes in owner’s equity, is also often prepared. The Seventh Step in the Accounting Cycle: Financial Statements The primary financial statements prepared for a sole proprietorship are the income statement and the balance sheet. A third statement, the statement of changes in owner’s equity, is also often prepared. Section 1The Income Statement (cont'd.)

5. The Income Statement The income statement reports the net income or net loss for the period. The Income Statement The income statement reports the net income or net loss for the period. Section 1The Income Statement (cont'd.)

6. Check Your Understanding What three financial statements are prepared for a sole proprietorship? Section 1The Income Statement (cont'd.)