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Preparing Financial Statements for a Sole Proprietorship

Learn how to prepare income statements, statements of changes in owner's equity, and balance sheets for a sole proprietorship. Understand the purpose and importance of each financial statement.

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Preparing Financial Statements for a Sole Proprietorship

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  1. Chapter 8 Preparing Financial Statements For A Sole Proprietorship

  2. Learning Objectives • 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 in report form. • Define the accounting terms introduced in this chapter.

  3. Financial Statements • Reports prepared to summarize the changes resulting from business transactions that have occurred during a fiscal period.

  4. Income Statement • Reports the net income or net loss for the fiscal period it covers. • Comes after the worksheet

  5. Statement Of Changes • A financial statement that is prepared to summarize the effects on capital account of the various business transactions that occurred during the period. • Comes after the Income Statement.

  6. Balance Sheet • A report of the final balances in all the asset, liability, and owners equity accounts at the end of the fiscal period. • Comes after the Statement Of Changes.

  7. Report Form • The classifications of balance sheet accounts are shown one under the other.

  8. Summary Of Key Points • The seventh step in the accounting cycle is preparing financial statements. • Income statements report net income or net loss for the period. • The statement of changes summarizes the effects of the periods transactions on the capital account. • The balance sheet reports the final balances at the end of the fiscal period. • To prepare the financial statements you must first have a worksheet prepared. • The financial statements may be hand written or written on the computer. Hand written statements must be in ink.

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