FINANCIAL STATEMENTS AND ADJUSTING ENTRIES

FINANCIAL STATEMENTS:

Financial statements are summaries of financial activities. Financial statements are prepared on a
regular basis at the end of an accounting period and are used to communicate important
accounting information.

ACCOUNTING PERIOD:

An accounting period is the time frame for which a business prepares its financial statements
and reports its financial performance and position to external stakeholders. This could be after
three, six or twelve months. The accounting period usually coincides with the business'
fiscal year.

INCOME STATEMENT:

A summary of business revenue and expenses for a specific period of time, such as month or a
year.

STATEMENT OF OWNERS EQUITY:

A summary of the changes that have occurred in owner’s equity during a specific period of time,
such as a month or a year.

BALANCE SHEET:

A listing of a firm’s assets, liabilities and owners equity at a specific point in time, such as the
last day of a month or the last day of year.

GUIDE FOR FINANCIAL STAEMENTS PREPERATIONS:

NEW COMB COMPANY

INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2020
Revenue:
Service revenue $100,000,00
Expenses:
Salaries expense $300,000
Rent expense 200,000
Utilities expense 100,000
Total expenses 600,000
Net income $400,000
 NEW COMB COMPANY
STATEMENT OF OWNERS EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2020
Todd Newcomb,Capital,January 1,2020 $900,000
Net income for period $400,000
Less: Withdrawls 200,000
Increase in Capital $200,000
Todd Newcomb,Capital,December 31,2020 $11,00,000

NEW COMB COMPANY

BALANCE SHEET
DECEMBER 31, 2020
ASSETS
Cash $300,000
Accounts receivable 200,000
Supplies 100,000
Equipment 600,000
Total Assets $12,00,000
LIABILITIES
Accounts payable $100,000
OWNERS EQUITY
Todd Newcomb Capital $11,00,000
Total liabilities and owners equity $12,00,000

PRACTICE QUESTION:

Marilyn Johnson, Attorney at Law

Trial Balance
July 31, 1990
ACCOUNTS TITLE DEBIT CREDIT
Cash 1375000
Account receivable 20000
Supplies 200000
Equipment 3000000
Account payable 2500000
Marilyn Johnson Capital 2000000
Drawings 70000
Legal fees earned 400000
Salaries expense 150000
Rent expense 60000
Utility expense 25000
Totals 4900000 4900000

SOLUTION:

MARILYN JOHNSON ATTORNEY AT LAW

INCOME STATEMENT
FOR THE MONTH ENDED JULY 31, 1990
Revenue:
Legal fees earned $4,000,00
Expenses:
Salaries expense $150,000
Rent expense 60,000
Utilities expense 25,000
Total expenses 235,000
Net income $165,000

MARILYN JOHNSON ATTORNEY AT LAW

STATEMENT OF OWNERS EQUITY
FOR THE MONTH ENDED JULY 31, 1990
Marilyn, Johnson,Capital,July 1,2020 $200,0000
Net income for the month $165,000
Less: Withdrawls 70,000
Increase in Capital $95,000
Marilyn, Johnson,Capital,July 31,2020 $20,95,000

MARILYN JOHNSON ATTORNEY AT LAW

BALANCE SHEET
JULY 31, 1990
ASSETS
Cash $1375,000
Accounts receivable 20,000
Supplies 200,000
Equipment 3000,000
Total Assets $45,95,000
LIABILITIES
Accounts payable $25,00,000
OWNERS EQUITY
Marilyn Johnson Capital $20,95,000
Total liabilities and owners equity $45,95,000