Chapter 9 Financial Statements for a Sole Proprietorship

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Chapter 9Financial Statements for a Sole
Proprietorship

• What Youll Learn
• Explain the purpose of the income statement.
• Prepare an income statement.
• Explain the purpose of the statement of changes
  in owners equity.
• Prepare a statement of changes in owners equity.
• Explain the purpose of a balance sheet.
• Prepare a balance sheet.
• Explain the purpose of the statement of cash
  flows.
• Explain the ratio analysis and compute ratios.
• Define the accounting terms introduced in this
  chapter.

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Financial Statements
SECTION 9.1

• When we operate a business, we need to have
  current financial information.
• Financial statements
• summarize changes resulting from business
  transactions that occur during an accounting
  period.
• Preparing financial statements is the seventh
  step in the accounting cycle.

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The Income Statement
SECTION 9.1
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Financial Statements
SECTION 9.1

• The financial statements often prepared for a
  sole proprietorship are
• the income statement.
• the balance sheet.
• the statement of changes in owners equity.
• the statement of cash flows.

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The Income Statement
SECTION 9.1

• The income statement reports net income or net
  loss for a defined period of time. It is
  sometimes called a profit-and-loss statement or
  an earnings statement.
• Income Statement Sections
• The income statement contains the following
  sections
• the heading
• the revenue for the period
• the expenses for the period
• the net income or net loss for the period

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The Income Statement
SECTION 9.1

• Heading
• The heading of an income statement has three
  parts
• the name of the business (Who?)
• the name of the report (What?)
• the period covered (When?)

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The Income Statement
SECTION 9.1

• Revenue Section
• To record revenue
• A - Write Revenue on the first line at the left
  side.
• B - Enter revenue account names beginning on the
  second line.
• C - Enter the balance of each revenue account in
  the first amount column.
• Enter the total revenue in the second
  amount column beneath the last revenue amount
  and write Total Revenue to the left.

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The Income Statement
SECTION 9.1

• Expenses Section
• To record expenses
• D - On the line following the revenue section,
  write Expenses at the left side.
• E - Enter expense account names beginning on
  the next line and enter the balances in the
  first amount column.
• F - Draw a single rule line under the last
  balance.
• G - Write Total Expenses on the line beneath the
  last expense account name.
• H - Add the balances for the expense accounts
  and enter the amount in the second amount
  column below the last expense account balance.

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The Income Statement
SECTION 9.1

• Net Income Section
• To record net income
• I - Draw a single rule line under the total
  expenses amount.
• J - Subtract total expenses from total revenue
  and enter the value in the second amount
  column under the total expenses amount.
• K - To the left of this value, write Net Income.
• L - If this amount matches the amount on the work
  sheet, draw a double rule beneath the net
  income amount.

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The Income Statement
SECTION 9.1
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The Income Statement
SECTION 9.1

• Reporting a Net Loss
• If total expenses exceed total revenue, a net
  loss exists.
• To record a net loss
• Enter the net loss amount in the second amount
  column beneath the total expenses amount.
• Write Net Loss to the left of this value.

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Assignments

• Complete Demo Problem 9-2 9-3
• Complete Problem 9-4