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Betty’s Bakery
The Balance Sheet - continued Overview - continued
The balance sheet is divided into three sections: assets, which lists all of the assets of the company in order of liquidity; liabilities, representing the creditor’s rights to assets; and equity, representing the owner’s rights to the assets.
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Asset account balances are normally carried as debit balances, and liability and equity account balances are normally carried as credit balances
Work to be Performed
The Balance Sheet is located in Step 5 Workpapers (5.6). Remove it from the manual and become familiar with the format and information to be entered.
1. Enter the month-end date and year right below BALANCE SHEET.
2. From the Trial Balance enter the account balances for the assets, liabilities, and Owner’s Initial Investment without brackets. (The lines with brackets indicate deductions.)
3. Enter sub-total amounts where there are single lines.
4. Enter grand total amounts where there are double lines.
5. Enter the profit or (loss) amount from the Trial Balance on the Retained Earnings line.
6. The Total Assets must equal the Total Liabilities & Owner’s Equity.
The Income Statement Overview
An income statement is a financial statement that reports a company's income and expenses over a specific period of time, usually a month, quarter, or year. It is also known as a profit and loss statement, P&L statement, or Statement of Operations.
The income statement provides a summary of a company's operating results and performance, reporting whether it made a profit or a loss for the period covered. It shows the company's financial performance over an accumulated period of time
The income and expense accounts belong to the owner and are sub-sets of the owner’s equity. They are temporary accounts that only live for one year. After a year’s activity, the accumulated income and expense balances accounts are transferred back into equity. This is referred to as “closing the books” as the income and expense accounts begin the next year with zero balances.
In the past, income credit and expense transactions were recorded directly into equity, where the information could not be easily extracted and analyzed. Over time, if the business operates at a PROFIT, the owner’s equity increases. Conversely, if it generates LOSSES, the owner’s equity decreases.
