summary of the accounts and their balances because it shows the balances on a specific date for all accounts in a company's accounting system. In addition to proving the equality of debits and credits, the trial balance is also used to prepare the financial statements. The account balances are taken directly from the trial balance and are used to prepare the income statement, statement of retained earnings, and balance sheet. Requirement 1. Prepare the income statement for the month ended July 31 comma 2017 .
It's important to remember that the only two types of accounts that are reported on the income statement are revenues and expenses. Every income statement contains similar information. bullet The revenue accounts are always listed first and then subtotaled if necessary. (Subtotals are not necessary when only one revenue account exists.) bullet Each expense account is listed separately, typically from largest to smallest, and then subtotaled if necessary. (Subtotals are not necessary when only one expense account exists.) bullet Net income is calculated as total revenues minus total expenses. Refer to the July 31 comma 2017 trial balance provided and select the accounts and labels that will appear on the income statement of Sally Simmons comma Registered Dietician . Sally Simmons, Registered Dietician Income Statement Month Ended July 31, 2017 Revenues: Service Revenue Expenses: Salaries Expense Rent Expense Utilities Expense Total Expenses Net Income Businesses strive for net income. When revenues are greater than expenses, the result of operations is a profit or net income. When expenses are greater than revenues, the result is a net loss. Complete the income statement by entering the revenue and expense amounts, and then calculating total expenses and the resulting net income for the month. Sally Simmons, Registered Dietician Income Statement Month Ended July 31, 2017 Revenues: Service Revenue $15,932 Expenses: Salaries Expense $1,300 Rent Expense 1,000 Utilities Expense 400 Total Expenses 2,700 Net Income $ 13,232 Requirement 2. Prepare the statement of retained earnings for the month ended July 31 comma 2017
. The beginning balance of retained earnings was $0. The statement of retained earnings answers the question of how the business uses its earnings. Did the company pay dividends or did the company keep the earnings to further invest in the business? The statement of retained earnings reports how the company's retained earnings balance changed from the beginning to the end of the period. The retained earnings account increases by net income and decreases by dividends and net losses. Begin by selecting the labels of the statement. Select any items that result in an increase in retained earnings prior to the subtotal and any decreases to retained earnings below the subtotal.
You've reached the end of your free preview.
Want to read all 17 pages?