Financial Statements for a Sole Proprietorship - PowerPoint PPT Presentation

1 / 25
About This Presentation
Title:

Financial Statements for a Sole Proprietorship

Description:

Chapter 9. Financial Statements for a Sole Proprietorship. Objectives. Students will be able to: ... prepared for a sole proprietorship are the income statement ... – PowerPoint PPT presentation

Number of Views:424
Avg rating:3.0/5.0
Slides: 26
Provided by: meredith4
Category:

less

Transcript and Presenter's Notes

Title: Financial Statements for a Sole Proprietorship


1
Chapter 9
  • Financial Statements for a Sole Proprietorship

2
Objectives
  • Students will be able to
  • Explain the purpose of the income statement
  • Prepare an income statement
  • Explain the purpose of a statement of changes in
    owners equity
  • Prepare a statement of changes in owners equity
  • Explain the purpose of the balance sheet

3
  • Explain and compute the return on sales
    percentage
  • Calculate liquidity ratios and explain their
    function
  • Prepare a balance sheet
  • Define the accounting terms introduced in this
    chapter

4
Financial Statements
  • 7th step in the accounting cycle
  • Important to evaluate profits or losses
  • Prepared to summarize the changes resulting from
    business transactions that occur during an
    accounting period

5
Financial Statements
  • The primary financial statements prepared for a
    sole proprietorship are the income statement and
    the balance sheet
  • Statement of owners equity is a third statement

6
The Income Statement
  • Reports net income or net loss for the period
  • Difference between total revenue and total
    expenses
  • Main purpose is to provide a report of the
    revenue earned and expenses incurred
  • Also called a profit and loss statement or an
    earnings statement

7
The Income Statement
  • Sections
  • Heading
  • Revenue
  • Expenses
  • Net income or net loss

8
Heading
  • Name of business (who)
  • Name of report (what)
  • The period covered (when)

9
The Revenue Section
  • Write revenue on the first line to the left
  • Enter the revenue account names beginning on the
    second line, indent
  • Enter the balance of the revenue accounts
  • if more than one revenue account write total
    revenue on a separate line and indent

10
The Expense Section
  • Write expenses to the left
  • Write names of expense accounts, indent
  • Write balances
  • Draw single line
  • Write total expenses, indent
  • Add balance

11
The Net Income Section
  • Draw a single line under total expenses amount
  • Subtract expenses from revenue
  • Write the words net income to the left
  • Write net income in second amount column
  • If the amount of net income matches the amount
    shown on the work sheet, draw a double line

12
Showing a Net Loss
  • If expenses are greater than revenue, there is a
    net loss
  • Subtract revenue from expenses
  • Enter net loss amount

13
The Income Statement
14
  • Problem 9-4

15
Statement of Changes in Owners Equity
  • Summarizes changes in the owners capital account
    as a result of business transactions during the
    period
  • Prepared at the end of the period
  • Heading
  • Who business name
  • What name of document (statement of owners
    equity)
  • When period covered

16
Statement of Changes in Owners Equity
  • The information to prepare this statement is
    found in three places
  • The work sheet
  • The income statement
  • The owners capital account in the general ledger

17
Statement of Changes in Owners Equity
18
Statement of Changes in Owners Equity for an
Ongoing Business
  • There are 2 ways to determine the owners capital
    account balance at the beginning of the period
  • Look at the ledger
  • Subtract the additional investments from the
    account balance shown on the worksheet

19
  • Problem 9-5
  • Problem 9-6 steps 1-3

20
The Balance Sheet
21
The Balance Sheet
  • Report of balances in all asset, liability, and
    owners equity accounts at the end of a period
  • Assets Liabilities Owners Equity
  • Amounts in left column, totals in right column
  • Unless only one account for section, then put in
    right column

22
Return on Sales
  • Determine the portion of each sales dollar that
    represents profit

Net Income 1,150 net income
.434 or 43.4
Sales 2,650 sales
23
Current Ratio
  • Relationship between current assets and current
    liabilities.

Current Assets 37,775 Current
Liabilities 11,725
Current Ratio 3.22 or 3.21
24
Quick Ratio
  • The relationship between short term assets and
    current liabilities.

Cash and Receivables 22,575 Current
Liabilities 11,725
Quick Ratio 1.921
25
  • Problem 9-7 due at END OF PERIOD, no exceptions!!
Write a Comment
User Comments (0)
About PowerShow.com