Questions and Answers
____ summarize the changes resulting from business transactions that have occurred during an accounting period.
Financial statements
One source of information for completing the balance sheet is the ____.
Balance Sheet section of worksheet
A(n) ____ is the financial statement that reports the final balances in all asset, liability, and owner's equity accounts at the end of the accounting period.
Balance sheet
____ indicates what percentage of net sales represents profit.
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The ____ is completed as a support document for the balance sheet.
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The information needed to prepare the income statement comes from the ____.
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____ is a comparison of two items on a financial statement, resulting in a percentage that is used to evaluate the relationship between the two items.
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The ____ reports a business's net income or net loss over an entire accounting period.
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The balance sheet reports financial information ____.
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In the ____, the classifications of balance sheet accounts are shown one under the other.
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____ is reported on the income statement.
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A net income will increase the owner's capital account.
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Financial reports are often prepared in pencil.
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Net income or net loss is the difference between total revenue and total expenses over a specific period of time.
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Return on sales is calculated by dividing net sales by net income.
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The balance sheet is prepared before the statement of changes in owner's equity.
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The balance sheet reports the final balances of the permanent accounts at the end of the fiscal period.
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The changes in the Cash in Bank account are reported in the statement of changes in owner's equity.
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The first amount column on the income statement is used to record revenue and the second amount column is used to record expenses.
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The heading is the same on all three financial statements.
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The income statement represents the basic accounting equation.
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The information on the statement of changes in owner's equity is used in preparing the income statement.
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The net income or net loss reported on the income statement must be the same as the net income or net loss calculated on the work sheet.
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The primary financial statements prepared for a sole proprietorship are the income statement and the balance sheet.
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The revenue, expense, and the Income Summary accounts are included on the statement of changes in owner's equity.
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The statement of changes in owner's equity summarizes the effects on the capital account of the various business transactions that occurred during the period.
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The Trial Balance section of the work sheet provides the information used in preparing the income statement.
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Study Notes
Financial Statements
- Financial statements summarize changes from business transactions over an accounting period.
- Common forms include the balance sheet, income statement, and statement of changes in owner's equity.
Balance Sheet
- The balance sheet reports final balances in all asset, liability, and owner's equity accounts at the end of the accounting period.
- It presents financial information as of a specific date.
- Can be displayed in report form, with account classifications listed vertically.
Income Statement
- Reports a business's net income or net loss over an entire accounting period.
- Contains information necessary for preparation sourced from the Income Statement section of the worksheet.
- The first amount column records revenue, while the second column is for expenses.
Statement of Changes in Owner's Equity
- Supports the balance sheet by detailing changes in the capital account due to various business transactions during the period.
Ratios and Measurements
- Return on sales indicates the percentage of net sales that translates to profit and is calculated as net income divided by net sales.
- Ratio analysis compares two financial items to illustrate their relationship, often expressed as a percentage.
Capital Changes
- Net income increases the owner's capital account, while net loss decreases it.
- The income statement’s net income or loss must match the Worksheet's calculations for consistency.
True/False Concepts
- Financial reports should not be prepared in pencil.
- The balance sheet is completed after the statement of changes in owner's equity.
- The net income or loss reported is the difference between total revenue and expenses over the accounting period.
- The heading format is consistent across the three primary financial statements: income statement, balance sheet, and statement of changes in owner's equity.
- The statement of changes in owner's equity excludes revenue, expense, and Income Summary accounts, which are included in the income statement.
Key Takeaways
- Understanding the purpose and structure of various financial statements is crucial for assessing business performance.
- Knowing how to interpret net income, balance sheet data, and ratios plays an essential role in financial analysis.
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Enhance your understanding of key concepts in Accounting Chapter 9 with these flashcards. Each card focuses on essential terms like financial statements and balance sheets, summarizing crucial definitions. Perfect for reviewing and reinforcing your knowledge before the test.
