THE FINANCIAL STATEMENTS

The preparation of the financial statements is the seventh step in the 9-step accounting
cycle. We will take a look at them first before getting into the whole process for you to
have a picture of what we are trying to produce in an accounting system.
The financial statements are the end-product reports of accounting.
The preparation of the financial statements is the summarizing phase of accounting.
A complete set of financial statements is made up of five components: an Income
Statement, a Statement of Changes in Equity, a Balance Sheet, a Statement of Cash
Flows, and Notes to Financial Statements.
This chapter of the Accounting 101: The Basics course presents the components of a
financial statements package. The lessons here focus on a service-type sole
proprietorship business.

LESSON 1

Financial Statements Introduction: An Overview

Financial statements refer to a specific set of reports produced in an entity's accounting
system. The objective of these reports is to provide information about the entity. A
complete set includes... Read more..

LESSON 2

Income Statement a.k.a. Profit and Loss Statement

The Income Statement is also referred to as Profit and Loss (P&L) Statement. It shows
an entity's results of operations for a particular period of time. The income statement
presents the period's income and expenses, and the resulting net income or loss. Read
more..

LESSON 3

Statement of Changes in Owner's Equity

Capital is affected by four elements. It is increased by owner contributions and income,
and decreased by withdrawals and expenses. The Statement of Owner's Equity shows
the movement in capital as a result of these elements. Read more..

LESSON 4

Balance Sheet a.k.a. Statement of Financial Position

A Balance Sheet shows the financial position or condition of a company as of a certain
date. Hence, it is also called Statement of Financial Position. The Balance Sheet
presents the total resources owned and controlled by the company (assets) and the
claims against them (liabilities and capital). Read more..

LESSON 5

Statement of Cash Flows

Accountants follow the accrual basis in measuring income and expenses. However,
some users of accounting information are interested in the cash transactions of the
company; hence the need to present a Statement of Cash Flows. Read more..