Chapter 26

Financial Statements and End-of-Fiscal-Period Entries for a

Corporation

Financial Statements for a Corporation

Income Statement

Statement of Stockholders’ Equity

Balance Sheet

Income Statement

Reports the financial progress of a business during a fiscal period.Contains:

RevenueCost of Merchandise SoldGross Profit on OperationsOperating ExpensesNet Income or Net Loss

Statement of Stockholders’ Equity

Shows changes in a corporation’s ownership for a fiscal period.

Contains:Capital Stock

Retained Earnings

Balance Sheet

Reports assets, liabilities, and stockholders’ equity on a specific date.

Can be used to determine the financial strength of a business.

Classifying Assets

Assets are classified into two categories and are based on the length of time the assets will be in used:

Current Assets – Examples would be cash, accounts receivable, merchandise inventory, supplies, and prepaid insurance

Plant Assets – Examples would be cash registers, computers, and display cases.

Book Value

The difference between an asset’s account balance and its related contra account balance.Our company will be reporting three contra accounts:

Allowance for Uncollectible AccountsAccumulated Depreciation-Office EquipmentAccumulated Depreciation-Store Equipment

Classifying Liabilities

Liabilities are classified according to the length of time until they are due.

Current liabilities are due within one year.

Long-term liabilities are owed for more than a year. An example: Mortgage Payable.

Analyzing a Balance Sheet

Two analyses are used to evaluate the financial strength:

Working Capital – the amount of total current assets less total current liabilities.

Current Ratio – a ratio that shows the numeric relationship of current assets to current liabilities.

Adjusting, Closing, and Reversing Entries for a Corporation

Adjustments are similar to those for proprietorships and partnerships, with the exception of federal income tax.Closing Entries are made from information in a work sheet.Reversing Entries are recorded when adjusting entries create a balance in an asset or liability account.