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HomeReadSign inPRINCIPLES OF ACCOUNTING, VOLUME 1: FINANCIALACCOUNTINGCONTENTSSearch in book…The Adjustment Process23.Prepare Financial StatementsUsing the Adjusted TrialBalance
Once you have prepared the adjusted trial balance, you are ready toprepare the financial statements. Preparing financial statements is theseventh step in the accounting cycle. Remember that we have fourfinancial statements to prepare: an income statement, a statement ofretained earnings, a balance sheet, and the statement of cash flows. Thesefinancial statements were introduced inIntroduction to FinancialStatementsandStatement of Cash Flowsdedicates in-depth discussion tothat statement.To prepare the financial statements, a company will look at the adjustedtrial balance for account information. From this information, thecompany will begin constructing each of the statements, beginning withthe income statement. Income statements will include all revenue andexpense accounts. The statement of retained earnings will includebeginning retained earnings, any net income (loss) (found on the incomestatement), and dividends. The balance sheet is going to include assets,contra assets, liabilities, and stockholder equity accounts, includingending retained earnings and common stock.Magnificent Adjusted Trial Balance
Go over the adjusted trial balance for Magnificent Landscaping Service.Identify which financial statement each account will go on: BalanceSheet, Statement of Retained Earnings, or Income Statement.
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Income StatementAn income statement shows the organization’s financial performance fora given period of time. When preparing an income statement, revenueswill always come before expenses in the presentation. For Printing Plus,the following is its January 2019 Income Statement.Revenue and expense information is taken from the adjusted trial balanceas follows:
Total revenues are $10,240, while total expenses are $5,575. Totalexpenses are subtracted from total revenues to get a net income of$4,665. If total expenses were more than total revenues, Printing Pluswould have a net loss rather than a net income. This net income figure isused to prepare the statement of retained earnings.The Importance of Accurate Financial StatementsFinancial statements give a glimpse into the operations of a company,and investors, lenders, owners, and others rely on the accuracy of thisinformation when making future investing, lending, and growthdecisions. When one of these statements is inaccurate, the financialimplications are great.