The income statement can be prepared using a single

The income statement can be prepared using a single-step or a multiple-step approach, and might be
further modified to include a number of special disclosures relating to unique items. These topics will
be amplified in several subsequent chapters. For now, take careful note that the following income
statement illustration relates to activities of a specified time period (e.g., year, quarter, month), as is
clearly noted in its title:
STATEMENT OF RETAINED EARNINGS
Previous illustrations showed how retained earnings increases and decreases in response to events
that impact income. A company's overall net income will cause retained earnings to increase, and a
net loss will result in a decrease. Retained earnings is also reduced by
shareholder dividends.
The statement of retained earnings provides a concise reporting of these changes in retained
earnings from one period to the next. In essence, the statement is nothing more than a reconciliation
or “bird’s-eye view” of the bridge between the retained earnings amounts appearing on two successive
balance sheets.

Many companies provide a statement of stockholders’ equity in lieu of the statement of retained
earnings. The statement of stockholders’ equity portrays not only the changes in retained earnings,
but also changes in other equity accounts. An expanded statement of stockholders’ equity is presented
in a future chapter.
BALANCE SHEET
The balance sheet focuses on the accounting equation by revealing the economic resources owned by
an entity and the claims against those resources (liabilities and owners’ equity). The balance sheet is
prepared as of a specific date, whereas the income statement and statement of retained earnings
cover a period of time. Accordingly, it is sometimes said that the balance sheet portrays financial
position (or condition) while other statements reflect results of operations. Quartz’s balance sheet is as
follows:
STATEMENT OF CASH FLOWS
The statement of cash flows details the enterprise’s cash flows. This operating statement reveals how
cash is generated and expended during a specific period of time. It consists of three unique sections
that isolate the cash inflows and outflows attributable to (a) operating activities, (b) investing
activities, and (c) financing activities.

Notice that the cash provided by operations is not the same as net income found in the income
statement. This result occurs because some items generate income and cash flows in different periods.
For instance, remember how Edelweiss (from the earlier illustration) generated income from a service
provided on account? That transaction increased income without a similar effect on cash. These
differences tend to even out over time. Other cash flow items may never impact operations. For
instance, dividends paid are an important financing cash outflow for a corporation, but they are not an
expense. They are a distribution of income. The proceeds of a loan would be an example of a