There is an order to financial statement preparation

Info icon This preview shows pages 20–22. Sign up to view the full content.

View Full Document Right Arrow Icon
There is an order to financial statement preparation. First, a company prepares its income ent using the income statement accounts. It then uses the net income number and dividend ation to update the retained earnings account. Second, it prepares the balance sheet using :;xlated retained earnings account along with the remaining balance sheet accounts from the balance. Third, it prepares the statement of stockholders' equity. Fourth, it prepares the state- of cash flows using information from the cash account (and other sources).
Image of page 20

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
2-21 Module 2 I Overview of Business Activities and Financial Statements MID-MODULE REVIEW 2 Refer to information in Mid-Module Review 1; assume that Dell reports the following balances for the prior year balance sheet and current year income statement. Prepare the articulation of Dell's financial statements from fiscal years 2010 to 2011 following the format of Exhibit 2.10. ,~Balance Sheet, January 29, 2010 Assets Cash. . . . . . . . . . . . . . . . . . . . .. $10,635 Noncash assets . . . . . . . . . . . . .. 23,017 Total assets. . . . . . . . . . . . . . . . .. $33,652 Revenues . Expenses . Net earnings . Liabilities and Equity Total liabilities . Equity Contributed capital . Retained earnings . Other stockholders' equity . Liabilities and equity . $28,011 11,472 22,110 (27,941) $33,652 The solution is on page 2-50. ANALYZING TRANSACTIONS AND ADJUSTMENTS Financial statements report on the financial performance of a business using the language of accounting. To prepare these statements, companies translate day-to-day transactions into accounting records (called journals), and then record (post) them to individual accounts. At the end of an accounting period, each of these accounts is totaled, and the resulting balances are used to prepare financial statements. After the financial statements are prepared, the temporary (income statement) accounts are "zeroed out" so that the next period can begin anew-akin to clearing a scoreboard for the next game. Permanent (balance sheet) accounts continue to reflect financial position and carryover from period to period - akin to keeping track of wins and losses even when a particular scoreboard is cleared. The accounting cycle is illustrated in Exhibit 2.11. Transactions are first recorded in the account- ing records. Each of these transactions is, generally, the result of an external transaction, such as recording a sale to a customer or the payment of wages to employees. Once all of the transactions have been recorded during the accounting period, the company adjusts the accounting records to recognize a number of events that have occurred, but which have not yet been recorded. These might include the recognition of wage expense and the related wages payable for those employees who have earned wages, but have not yet been paid, or the recognition of depreciation expense for build- feXH'IBIT £1~1~ Accounting Cycle I 1 2 I Analyze Transactions j".
Image of page 21
Image of page 22
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern