FINANCIAL STATEMENTSFOR A PROPRIETORSHIPChapter 7, Section 1

ACCOUNTING CONCEPTS

CONCEPT: Adequate Disclosure Financial statements contain all information

necessary to understand a business’s financial condition.

CONCEPT: Accounting Period Cycle Financial statements are always prepared at the

end of the fiscal period.

CONCEPT: Matching Expenses with Revenue The revenue earned and the expenses incurred to

earn that revenue are reported in the same fiscal period.

Would you work for a year (or even a month) without knowing how much you would be making?

INCOME STATEMENT

Shows financial progress over a period of time

Includes revenue, expenses, and net income/loss

Data obtained from Income Statement columns of the worksheet

PREPARING AN INCOME STATEMENT

Heading

3.Date of Report

1. Name of Company2.Name of Report

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2

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PREPARING AN INCOME STATEMENT (CONT.)

When listing amounts, the two columns are used to indicate different levels of calculations. First column is for account balances Second column is for section totals The columns are NOT debit and credit columns!

Sections include: Revenue Expenses Net Income/Loss

Section heading are written at the left Account titles are indented

PREPARING AN INCOME STATEMENT (CONT.)

1. Write the name of the first section.

2. Write the title of the revenue account.

3. Record the balance of the account.

4. Write the name of the second section.

5. Write the title of each expense account.

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42

118 97

131412

6. Record the balance of each account.

7. Rule a single line.

8. Write Total Expenses.

9. Record total expenses.

10. Rule a single line.

11. Calculate net income.

12. Write Net Income.

13. Record net income.

14. Rule double lines.

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COMPONENT PERCENTAGES

Percentage relationship between one financial statement item and the total that includes that item

Based on net sales

Total Expenses Percentage Total expenses ÷ Net sales

Net Income/Loss Percentage Net Income/Loss ÷ Net sales

COMPLETED INCOME STATEMENT

INCOME STATEMENT WITH TWO REVENUE ACCOUNTS AND A NET LOSS

1Revenue

3 Revenue amounts2Account titles

6Net Loss

7Record Net Loss(negative amounts are written in parentheses)

4 Total Revenue

5 Total of revenue