{"id":125,"date":"2018-04-16T20:25:30","date_gmt":"2018-04-16T20:25:30","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/?post_type=chapter&#038;p=125"},"modified":"2024-04-26T22:16:35","modified_gmt":"2024-04-26T22:16:35","slug":"structures-of-key-financial-statements","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/chapter\/structures-of-key-financial-statements\/","title":{"raw":"Structures of Key Financial Statements","rendered":"Structures of Key Financial Statements"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcome<\/h3>\r\n<ul>\r\n \t<li>Explain how key financial statements are structured<\/li>\r\n<\/ul>\r\n<\/div>\r\nAs you have seen, there are four basic financial statements: the Income Statement, the Statement of Owners\u2019 Equity, the Balance Sheet, and the Statement of Cash Flows.\r\n<h2>Income Statement<\/h2>\r\nThe income statement shows revenues less expenses, also known as net income. In accounting, the word \u201cnet\u201d means the combined total of both negative and positive amounts. For financial statement purposes, accountants don\u2019t identify account balances by debit and credit\u2014that\u2019s part of the internal process of accounting and bookkeeping that has to do with the double-entry system you studied earlier.\r\n\r\nHere is the adjusted trial balance we created for our sample company:\r\n<table style=\"border-collapse: collapse; width: 84.1584%; height: 408px;\" border=\"1\">\r\n<tbody>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 100%; text-align: center; height: 15px;\" colspan=\"4\"><span style=\"font-size: 16px;\">Adjusted Trial Balance as of Jan 31, 20XX<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\r\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\r\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">Debit<\/span><\/td>\r\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">Credit<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">1101<\/span><\/td>\r\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Checking<\/span><\/td>\r\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">16,050<\/span><\/td>\r\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">1210<\/span><\/td>\r\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Merchandise Inventory<\/span><\/td>\r\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">360<\/span><\/td>\r\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">1320<\/span><\/td>\r\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Prepaid Rent<\/span><\/td>\r\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">800<\/span><\/td>\r\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">1620<\/span><\/td>\r\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Furniture and Equipment<\/span><\/td>\r\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">2,750<\/span><\/td>\r\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">2101<\/span><\/td>\r\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Accounts Payable<\/span><\/td>\r\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\r\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">600<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">2201<\/span><\/td>\r\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Wages Payable<\/span><\/td>\r\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\r\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">500<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">2550<\/span><\/td>\r\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Notes Payable<\/span><\/td>\r\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\r\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">15,000<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">3310<\/span><\/td>\r\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Capital Contributions<\/span><\/td>\r\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\r\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">5,000<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">4510<\/span><\/td>\r\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Merchandise Sales<\/span><\/td>\r\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\r\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">400<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">5200<\/span><\/td>\r\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Cost of Goods Sold<\/span><\/td>\r\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">240<\/span><\/td>\r\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">5300<\/span><\/td>\r\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Wage Expense<\/span><\/td>\r\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">500<\/span><\/td>\r\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">5510<\/span><\/td>\r\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Rent Expense<\/span><\/td>\r\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">200<\/span><\/td>\r\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">5520<\/span><\/td>\r\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Insurance Expense<\/span><\/td>\r\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">600<\/span><\/td>\r\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"width: 14.1209%;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\r\n<td style=\"width: 47.9052%;\"><span style=\"font-size: 16px;\">Total debits must equal total credits<\/span><\/td>\r\n<td style=\"width: 20.5556%;\"><span style=\"font-size: 16px;\">21,500<\/span><\/td>\r\n<td style=\"width: 17.4183%;\"><span style=\"font-size: 16px;\">21,500<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nThe income statement always begins with revenue and then continues with a list of expenses for a period of time, either a month, a quarter, or most commonly, a year. Large companies summarize expenses into major categories, such as Cost of Goods Sold, and a broad category called Selling, General and Administrative (SG&amp;A). For our sample company, however, we have just a very few accounts, so we can list them out, subtotal the expenses, and subtract that amount from revenue to show net income or net loss.\r\n<table style=\"border-collapse: collapse; width: 100%;\" border=\"1\">\r\n<tbody>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 33.3333%; text-align: center; height: 15px;\" colspan=\"3\">Your Company<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 33.3333%; text-align: center; height: 15px;\" colspan=\"3\">Income Statement<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 33.3333%; text-align: center; height: 15px;\" colspan=\"3\">For the month ended January 31, 20XX<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 33.3333%; height: 15px;\">Merchandise Sales<\/td>\r\n<td style=\"width: 33.3333%; height: 15px;\"><\/td>\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">$400<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 33.3333%; height: 15px;\">Expenses<\/td>\r\n<td style=\"width: 33.3333%; height: 15px;\"><\/td>\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">Cost of Goods Sold<\/td>\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">$240<\/td>\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">Wage Expense<\/td>\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">500<\/td>\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">Rent Expense<\/td>\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">200<\/td>\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">Insurance Expense<\/td>\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">600<\/span><\/td>\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">Total Expenses<\/td>\r\n<td style=\"width: 33.3333%; height: 15px;\"><\/td>\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">1,540<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"width: 33.3333%;\">Net Income\/(Loss)<\/td>\r\n<td style=\"width: 33.3333%;\"><\/td>\r\n<td style=\"width: 33.3333%; text-align: right;\">$ (1,140)<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nThe bottom line on the income statement is either an increase in owners\u2019 equity, if it is net income, or a reduction in owners\u2019 equity if it is a loss (expenses exceed revenues). It is like a moving picture of the company, showing amounts earned during the regular course of business (revenues) and the matching costs (expenses).\r\n\r\nIn our example from the previous section, expenses far exceeded revenues, which is common in the first few months of a new business, so the company is showing a net loss.\r\n<h2>Statement of Owners\u2019 Equity<\/h2>\r\nThe statement of owners\u2019 equity, or owner\u2019s equity if the company is a sole proprietorship, shows beginning owner capital, additions and subtractions to capital, including net income from the Income Statement. This gives the total owners\u2019 capital at the end of the same specific time period as the Income Statement. This amount will be the beginning capital for the next Statement of Owners\u2019 Equity. Both of the Income Statement and the Statement of Owners\u2019 Equity, as well as the Statement of Cash Flows, show activities over a period of time, such as a year.\r\n<table style=\"border-collapse: collapse; width: 100%;\" border=\"1\">\r\n<tbody>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 66.6666%; text-align: center; height: 15px;\" colspan=\"2\">Your Company<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 66.6666%; text-align: center; height: 15px;\" colspan=\"2\">Statement of Owner's Equity<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 66.6666%; text-align: center; height: 15px;\" colspan=\"2\">For the month ended January 31, 20XX<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 33.3333%; height: 15px;\">Beginning Capital<\/td>\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">$--<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 33.3333%; height: 15px;\">Owner Contributions<\/td>\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">5,000<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 33.3333%; height: 15px; text-align: left;\">Net Income\/(Loss)<\/td>\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">(1,140)<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\"><\/td>\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">3,860<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 33.3333%; height: 15px; text-align: left;\">Owner Withdrawals<\/td>\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">--<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 33.3333%; height: 15px; text-align: left;\">Ending Capital<\/td>\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 33.3333%; height: 15px; text-align: left;\">Ending Capital<\/td>\r\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">$3,860<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nNotice that the Statement of Owner\u2019s Equity reflects the expanded accounting equation:\r\n<p style=\"text-align: center;\">Equity = Owner Contributions \u2013 Owner Withdrawals + Revenues \u2013 Expenses.<\/p>\r\n\r\n<h2 style=\"text-align: left;\">Balance Sheet<\/h2>\r\nThe balance sheet, unlike the previous two statements, shows a snapshot of the business at a moment in time. Notice that the Income Statement and the Statement of Owners\u2019 Equity both identify the period of time covered, but the Balance Sheet indicates a specific date that is always the last day of the time period covered by the prior two statements. The balance sheet is based on the accounting equation and show total assets, total liabilities, and owners\u2019 equity, and shows as well how they balance.\r\n<table style=\"border-collapse: collapse; width: 100%;\" border=\"1\">\r\n<tbody>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 88.2742%; text-align: center; height: 15px;\" colspan=\"3\">Your Company<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 88.2742%; text-align: center; height: 15px;\" colspan=\"3\">Balance Sheet<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 88.2742%; text-align: center; height: 15px;\" colspan=\"3\">As of January 31, 20XX<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 37.7777%; height: 15px;\">Assets<\/td>\r\n<td style=\"width: 50.4965%; height: 15px;\" colspan=\"2\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 37.7777%; height: 15px;\">\u00a0 \u00a0 \u00a0 Current Assets<\/td>\r\n<td style=\"width: 50.4965%; height: 15px;\" colspan=\"2\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 37.7777%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Cash and Cash Equivalents<\/td>\r\n<td style=\"width: 50.4965%; height: 15px; text-align: right;\" colspan=\"2\">$16,050<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 37.7777%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Merchandise Inventory<\/td>\r\n<td style=\"width: 50.4965%; height: 15px; text-align: right;\" colspan=\"2\">360<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 37.7777%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Prepaid Expenses<\/td>\r\n<td style=\"width: 50.4965%; height: 15px; text-align: right;\" colspan=\"2\"><span style=\"text-decoration: underline;\">800<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 37.7777%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Total Current Assets<\/td>\r\n<td style=\"width: 50.4965%; height: 15px; text-align: right;\" colspan=\"2\">17,210<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 37.7777%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Property, Plant, and Equipment<\/td>\r\n<td style=\"width: 50.4965%; height: 15px; text-align: right;\" colspan=\"2\"><span style=\"text-decoration: underline;\">2,750<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 37.7777%; height: 15px;\">Total Assets<\/td>\r\n<td style=\"height: 15px; text-align: right; width: 50.4965%;\" colspan=\"2\">$ 19,960<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 37.7777%; height: 15px;\"><\/td>\r\n<td style=\"text-align: right; height: 15px; width: 50.4965%;\" colspan=\"2\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 37.7777%; height: 15px;\">Current Liabilities<\/td>\r\n<td style=\"text-align: right; height: 15px; width: 50.4965%;\" colspan=\"2\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 37.7777%; height: 15px;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Accounts Payable<\/td>\r\n<td style=\"text-align: right; height: 15px; width: 50.4965%;\" colspan=\"2\">$600<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 37.7777%; height: 15px;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Wages Payable<\/td>\r\n<td style=\"text-align: right; height: 15px; width: 50.4965%;\" colspan=\"2\"><span style=\"text-decoration: underline;\">500<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 37.7777%; height: 15px;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Total Current Liabilities<\/td>\r\n<td style=\"text-align: right; height: 15px; width: 50.4965%;\" colspan=\"2\">1,100<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 37.7777%; height: 15px;\">Long-term debt<\/td>\r\n<td style=\"text-align: right; height: 15px; width: 50.4965%;\" colspan=\"2\"><span style=\"text-decoration: underline;\">15,000<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 37.7777%; height: 15px;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Total Liabilities<\/td>\r\n<td style=\"text-align: right; height: 15px;\" colspan=\"2\">$16,100<\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"width: 37.7777%;\"><\/td>\r\n<td style=\"text-align: right; width: 50.4965%;\" colspan=\"2\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 37.7777%; height: 15px;\">Owner's Equity<\/td>\r\n<td style=\"text-align: right; height: 15px; width: 50.4965%;\" colspan=\"2\"><span style=\"text-decoration: underline;\">3,860<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 37.7777%; height: 15px;\">Total Liabilities and Owner's Equity<\/td>\r\n<td style=\"width: 50.4965%; text-align: right; height: 15px;\" colspan=\"2\">19,960<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nNotice that total assets of $19,960 is equal to total liabilities and equity of $19,960, and that the owner\u2019s equity of $3,860 carried forward from the bottom line of the Statement of Owner\u2019s Equity. Finally, the statement of cash flows reconciles beginning cash and cash equivalents from the balance sheet (ending cash from the prior set of financial statements) to ending cash from the current balance sheet, effectively reconciling accrual basis accounting to cash basis.\r\n<table style=\"border-collapse: collapse; width: 100%;\" border=\"1\">\r\n<tbody>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 135.968%; text-align: center; height: 15px;\" colspan=\"3\">Your Company<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 135.968%; text-align: center; height: 15px;\" colspan=\"3\">Statement of Cash Flows<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 135.968%; text-align: center; height: 15px;\" colspan=\"3\">For the month ended January 31, 20XX<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 60.553%; height: 15px;\">Cash provided by operating activities<\/td>\r\n<td style=\"width: 75.4148%; height: 15px;\" colspan=\"2\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 60.553%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Cash receipts from customers<\/td>\r\n<td style=\"width: 75.4148%; height: 15px;\" colspan=\"2\">$400<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 60.553%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Cash payments to vendors<\/td>\r\n<td style=\"width: 75.4148%; height: 15px; text-align: right;\" colspan=\"2\"><span style=\"text-decoration: underline;\">(1,600)<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 60.553%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Cash provided by\/(used by)operations<\/td>\r\n<td style=\"width: 75.4148%; height: 15px; text-align: right;\" colspan=\"2\">(1,200)<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 60.553%; height: 15px; text-align: left;\"><\/td>\r\n<td style=\"width: 75.4148%; height: 15px; text-align: right;\" colspan=\"2\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 60.553%; height: 15px;\">Cash provided by investing activities<\/td>\r\n<td style=\"width: 75.4148%; height: 15px; text-align: right;\" colspan=\"2\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 60.553%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Purchases of fixed assets<\/td>\r\n<td style=\"width: 75.4148%; height: 15px; text-align: right;\" colspan=\"2\">(2,750)<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 60.553%; height: 15px;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Cash provided by\/(used by) investing<\/td>\r\n<td style=\"height: 15px; text-align: right; width: 75.4148%;\" colspan=\"2\">(2,750)<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 60.553%; height: 15px;\"><\/td>\r\n<td style=\"text-align: right; height: 15px; width: 75.4148%;\" colspan=\"2\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 60.553%; height: 15px;\">Cash provided by financing<\/td>\r\n<td style=\"text-align: right; height: 15px; width: 75.4148%;\" colspan=\"2\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 60.553%; height: 15px;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Long-term borrowing<\/td>\r\n<td style=\"text-align: right; height: 15px; width: 75.4148%;\" colspan=\"2\">15,000<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 60.553%; height: 15px;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Owner contributions<\/td>\r\n<td style=\"text-align: right; height: 15px; width: 75.4148%;\" colspan=\"2\"><span style=\"text-decoration: underline;\">5,000<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 60.553%; height: 15px;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Cash provided by\/(used by) financing<\/td>\r\n<td style=\"text-align: right; height: 15px; width: 75.4148%;\" colspan=\"2\"><span style=\"text-decoration: underline;\">20,000<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 60.553%; height: 15px;\">Change in cash<\/td>\r\n<td style=\"text-align: right; height: 15px; width: 75.4148%;\" colspan=\"2\">16,050<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 60.553%; height: 15px;\">Beginning cash balance<\/td>\r\n<td style=\"text-align: right; height: 15px; width: 75.4148%;\" colspan=\"2\">--<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 60.553%; height: 15px;\">Ending cash balance<\/td>\r\n<td style=\"text-align: right; width: 75.4148%; height: 15px;\" colspan=\"2\">$16,050<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nIn our sample company, both beginning equity and beginning cash were zero. This statement tells us that operations used $1,200 in cash, as opposed to accrual basis net income from the income statement in the amount of $1,140, and that investing in fixed assets used $2,750 in cash. It also tells us that cash was provided by a combination of borrowing and owner investment in the company.\r\n<h2>Other Financial Statements<\/h2>\r\nA Statement of Comprehensive Income is often included along with the Income Statement if the company has certain investments that are adjusted to fair market value. Some smaller companies not subject to the full disclosure of GAAP only prepare the three most basic financial statements, and exclude the Statement of Cash Flows and the Statement of Comprehensive Income, providing instead just the Income Statement, the Statement of Owners\u2019 Equity, and the Balance Sheet.\r\n<div class=\"textbox tryit\">\r\n<h3>practice questions<\/h3>\r\nhttps:\/\/assess.lumenlearning.com\/practice\/c7e30aef-7098-475b-be0a-02edfc8bb37a\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcome<\/h3>\n<ul>\n<li>Explain how key financial statements are structured<\/li>\n<\/ul>\n<\/div>\n<p>As you have seen, there are four basic financial statements: the Income Statement, the Statement of Owners\u2019 Equity, the Balance Sheet, and the Statement of Cash Flows.<\/p>\n<h2>Income Statement<\/h2>\n<p>The income statement shows revenues less expenses, also known as net income. In accounting, the word \u201cnet\u201d means the combined total of both negative and positive amounts. For financial statement purposes, accountants don\u2019t identify account balances by debit and credit\u2014that\u2019s part of the internal process of accounting and bookkeeping that has to do with the double-entry system you studied earlier.<\/p>\n<p>Here is the adjusted trial balance we created for our sample company:<\/p>\n<table style=\"border-collapse: collapse; width: 84.1584%; height: 408px;\">\n<tbody>\n<tr style=\"height: 15px;\">\n<td style=\"width: 100%; text-align: center; height: 15px;\" colspan=\"4\"><span style=\"font-size: 16px;\">Adjusted Trial Balance as of Jan 31, 20XX<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">Debit<\/span><\/td>\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">Credit<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">1101<\/span><\/td>\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Checking<\/span><\/td>\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">16,050<\/span><\/td>\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">1210<\/span><\/td>\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Merchandise Inventory<\/span><\/td>\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">360<\/span><\/td>\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">1320<\/span><\/td>\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Prepaid Rent<\/span><\/td>\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">800<\/span><\/td>\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">1620<\/span><\/td>\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Furniture and Equipment<\/span><\/td>\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">2,750<\/span><\/td>\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">2101<\/span><\/td>\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Accounts Payable<\/span><\/td>\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">600<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">2201<\/span><\/td>\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Wages Payable<\/span><\/td>\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">500<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">2550<\/span><\/td>\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Notes Payable<\/span><\/td>\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">15,000<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">3310<\/span><\/td>\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Capital Contributions<\/span><\/td>\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">5,000<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">4510<\/span><\/td>\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Merchandise Sales<\/span><\/td>\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">400<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">5200<\/span><\/td>\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Cost of Goods Sold<\/span><\/td>\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">240<\/span><\/td>\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">5300<\/span><\/td>\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Wage Expense<\/span><\/td>\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">500<\/span><\/td>\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">5510<\/span><\/td>\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Rent Expense<\/span><\/td>\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">200<\/span><\/td>\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 14.1209%; height: 15px;\"><span style=\"font-size: 16px;\">5520<\/span><\/td>\n<td style=\"width: 47.9052%; height: 15px;\"><span style=\"font-size: 16px;\">Insurance Expense<\/span><\/td>\n<td style=\"width: 20.5556%; height: 15px;\"><span style=\"font-size: 16px;\">600<\/span><\/td>\n<td style=\"width: 17.4183%; height: 15px;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 14.1209%;\"><span style=\"font-size: 16px;\">\u00a0<\/span><\/td>\n<td style=\"width: 47.9052%;\"><span style=\"font-size: 16px;\">Total debits must equal total credits<\/span><\/td>\n<td style=\"width: 20.5556%;\"><span style=\"font-size: 16px;\">21,500<\/span><\/td>\n<td style=\"width: 17.4183%;\"><span style=\"font-size: 16px;\">21,500<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>The income statement always begins with revenue and then continues with a list of expenses for a period of time, either a month, a quarter, or most commonly, a year. Large companies summarize expenses into major categories, such as Cost of Goods Sold, and a broad category called Selling, General and Administrative (SG&amp;A). For our sample company, however, we have just a very few accounts, so we can list them out, subtotal the expenses, and subtract that amount from revenue to show net income or net loss.<\/p>\n<table style=\"border-collapse: collapse; width: 100%;\">\n<tbody>\n<tr style=\"height: 15px;\">\n<td style=\"width: 33.3333%; text-align: center; height: 15px;\" colspan=\"3\">Your Company<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 33.3333%; text-align: center; height: 15px;\" colspan=\"3\">Income Statement<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 33.3333%; text-align: center; height: 15px;\" colspan=\"3\">For the month ended January 31, 20XX<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 33.3333%; height: 15px;\">Merchandise Sales<\/td>\n<td style=\"width: 33.3333%; height: 15px;\"><\/td>\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">$400<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 33.3333%; height: 15px;\">Expenses<\/td>\n<td style=\"width: 33.3333%; height: 15px;\"><\/td>\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">Cost of Goods Sold<\/td>\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">$240<\/td>\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">Wage Expense<\/td>\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">500<\/td>\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">Rent Expense<\/td>\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">200<\/td>\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">Insurance Expense<\/td>\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">600<\/span><\/td>\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">Total Expenses<\/td>\n<td style=\"width: 33.3333%; height: 15px;\"><\/td>\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">1,540<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 33.3333%;\">Net Income\/(Loss)<\/td>\n<td style=\"width: 33.3333%;\"><\/td>\n<td style=\"width: 33.3333%; text-align: right;\">$ (1,140)<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>The bottom line on the income statement is either an increase in owners\u2019 equity, if it is net income, or a reduction in owners\u2019 equity if it is a loss (expenses exceed revenues). It is like a moving picture of the company, showing amounts earned during the regular course of business (revenues) and the matching costs (expenses).<\/p>\n<p>In our example from the previous section, expenses far exceeded revenues, which is common in the first few months of a new business, so the company is showing a net loss.<\/p>\n<h2>Statement of Owners\u2019 Equity<\/h2>\n<p>The statement of owners\u2019 equity, or owner\u2019s equity if the company is a sole proprietorship, shows beginning owner capital, additions and subtractions to capital, including net income from the Income Statement. This gives the total owners\u2019 capital at the end of the same specific time period as the Income Statement. This amount will be the beginning capital for the next Statement of Owners\u2019 Equity. Both of the Income Statement and the Statement of Owners\u2019 Equity, as well as the Statement of Cash Flows, show activities over a period of time, such as a year.<\/p>\n<table style=\"border-collapse: collapse; width: 100%;\">\n<tbody>\n<tr style=\"height: 15px;\">\n<td style=\"width: 66.6666%; text-align: center; height: 15px;\" colspan=\"2\">Your Company<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 66.6666%; text-align: center; height: 15px;\" colspan=\"2\">Statement of Owner&#8217;s Equity<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 66.6666%; text-align: center; height: 15px;\" colspan=\"2\">For the month ended January 31, 20XX<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 33.3333%; height: 15px;\">Beginning Capital<\/td>\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">$&#8211;<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 33.3333%; height: 15px;\">Owner Contributions<\/td>\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">5,000<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 33.3333%; height: 15px; text-align: left;\">Net Income\/(Loss)<\/td>\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">(1,140)<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\"><\/td>\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">3,860<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 33.3333%; height: 15px; text-align: left;\">Owner Withdrawals<\/td>\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\">&#8212;<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 33.3333%; height: 15px; text-align: left;\">Ending Capital<\/td>\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 33.3333%; height: 15px; text-align: left;\">Ending Capital<\/td>\n<td style=\"width: 33.3333%; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">$3,860<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Notice that the Statement of Owner\u2019s Equity reflects the expanded accounting equation:<\/p>\n<p style=\"text-align: center;\">Equity = Owner Contributions \u2013 Owner Withdrawals + Revenues \u2013 Expenses.<\/p>\n<h2 style=\"text-align: left;\">Balance Sheet<\/h2>\n<p>The balance sheet, unlike the previous two statements, shows a snapshot of the business at a moment in time. Notice that the Income Statement and the Statement of Owners\u2019 Equity both identify the period of time covered, but the Balance Sheet indicates a specific date that is always the last day of the time period covered by the prior two statements. The balance sheet is based on the accounting equation and show total assets, total liabilities, and owners\u2019 equity, and shows as well how they balance.<\/p>\n<table style=\"border-collapse: collapse; width: 100%;\">\n<tbody>\n<tr style=\"height: 15px;\">\n<td style=\"width: 88.2742%; text-align: center; height: 15px;\" colspan=\"3\">Your Company<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 88.2742%; text-align: center; height: 15px;\" colspan=\"3\">Balance Sheet<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 88.2742%; text-align: center; height: 15px;\" colspan=\"3\">As of January 31, 20XX<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 37.7777%; height: 15px;\">Assets<\/td>\n<td style=\"width: 50.4965%; height: 15px;\" colspan=\"2\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 37.7777%; height: 15px;\">\u00a0 \u00a0 \u00a0 Current Assets<\/td>\n<td style=\"width: 50.4965%; height: 15px;\" colspan=\"2\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 37.7777%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Cash and Cash Equivalents<\/td>\n<td style=\"width: 50.4965%; height: 15px; text-align: right;\" colspan=\"2\">$16,050<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 37.7777%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Merchandise Inventory<\/td>\n<td style=\"width: 50.4965%; height: 15px; text-align: right;\" colspan=\"2\">360<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 37.7777%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Prepaid Expenses<\/td>\n<td style=\"width: 50.4965%; height: 15px; text-align: right;\" colspan=\"2\"><span style=\"text-decoration: underline;\">800<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 37.7777%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Total Current Assets<\/td>\n<td style=\"width: 50.4965%; height: 15px; text-align: right;\" colspan=\"2\">17,210<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 37.7777%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Property, Plant, and Equipment<\/td>\n<td style=\"width: 50.4965%; height: 15px; text-align: right;\" colspan=\"2\"><span style=\"text-decoration: underline;\">2,750<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 37.7777%; height: 15px;\">Total Assets<\/td>\n<td style=\"height: 15px; text-align: right; width: 50.4965%;\" colspan=\"2\">$ 19,960<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 37.7777%; height: 15px;\"><\/td>\n<td style=\"text-align: right; height: 15px; width: 50.4965%;\" colspan=\"2\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 37.7777%; height: 15px;\">Current Liabilities<\/td>\n<td style=\"text-align: right; height: 15px; width: 50.4965%;\" colspan=\"2\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 37.7777%; height: 15px;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Accounts Payable<\/td>\n<td style=\"text-align: right; height: 15px; width: 50.4965%;\" colspan=\"2\">$600<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 37.7777%; height: 15px;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Wages Payable<\/td>\n<td style=\"text-align: right; height: 15px; width: 50.4965%;\" colspan=\"2\"><span style=\"text-decoration: underline;\">500<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 37.7777%; height: 15px;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Total Current Liabilities<\/td>\n<td style=\"text-align: right; height: 15px; width: 50.4965%;\" colspan=\"2\">1,100<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 37.7777%; height: 15px;\">Long-term debt<\/td>\n<td style=\"text-align: right; height: 15px; width: 50.4965%;\" colspan=\"2\"><span style=\"text-decoration: underline;\">15,000<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 37.7777%; height: 15px;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Total Liabilities<\/td>\n<td style=\"text-align: right; height: 15px;\" colspan=\"2\">$16,100<\/td>\n<\/tr>\n<tr>\n<td style=\"width: 37.7777%;\"><\/td>\n<td style=\"text-align: right; width: 50.4965%;\" colspan=\"2\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 37.7777%; height: 15px;\">Owner&#8217;s Equity<\/td>\n<td style=\"text-align: right; height: 15px; width: 50.4965%;\" colspan=\"2\"><span style=\"text-decoration: underline;\">3,860<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 37.7777%; height: 15px;\">Total Liabilities and Owner&#8217;s Equity<\/td>\n<td style=\"width: 50.4965%; text-align: right; height: 15px;\" colspan=\"2\">19,960<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Notice that total assets of $19,960 is equal to total liabilities and equity of $19,960, and that the owner\u2019s equity of $3,860 carried forward from the bottom line of the Statement of Owner\u2019s Equity. Finally, the statement of cash flows reconciles beginning cash and cash equivalents from the balance sheet (ending cash from the prior set of financial statements) to ending cash from the current balance sheet, effectively reconciling accrual basis accounting to cash basis.<\/p>\n<table style=\"border-collapse: collapse; width: 100%;\">\n<tbody>\n<tr style=\"height: 15px;\">\n<td style=\"width: 135.968%; text-align: center; height: 15px;\" colspan=\"3\">Your Company<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 135.968%; text-align: center; height: 15px;\" colspan=\"3\">Statement of Cash Flows<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 135.968%; text-align: center; height: 15px;\" colspan=\"3\">For the month ended January 31, 20XX<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 60.553%; height: 15px;\">Cash provided by operating activities<\/td>\n<td style=\"width: 75.4148%; height: 15px;\" colspan=\"2\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 60.553%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Cash receipts from customers<\/td>\n<td style=\"width: 75.4148%; height: 15px;\" colspan=\"2\">$400<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 60.553%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Cash payments to vendors<\/td>\n<td style=\"width: 75.4148%; height: 15px; text-align: right;\" colspan=\"2\"><span style=\"text-decoration: underline;\">(1,600)<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 60.553%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Cash provided by\/(used by)operations<\/td>\n<td style=\"width: 75.4148%; height: 15px; text-align: right;\" colspan=\"2\">(1,200)<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 60.553%; height: 15px; text-align: left;\"><\/td>\n<td style=\"width: 75.4148%; height: 15px; text-align: right;\" colspan=\"2\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 60.553%; height: 15px;\">Cash provided by investing activities<\/td>\n<td style=\"width: 75.4148%; height: 15px; text-align: right;\" colspan=\"2\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 60.553%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Purchases of fixed assets<\/td>\n<td style=\"width: 75.4148%; height: 15px; text-align: right;\" colspan=\"2\">(2,750)<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 60.553%; height: 15px;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Cash provided by\/(used by) investing<\/td>\n<td style=\"height: 15px; text-align: right; width: 75.4148%;\" colspan=\"2\">(2,750)<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 60.553%; height: 15px;\"><\/td>\n<td style=\"text-align: right; height: 15px; width: 75.4148%;\" colspan=\"2\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 60.553%; height: 15px;\">Cash provided by financing<\/td>\n<td style=\"text-align: right; height: 15px; width: 75.4148%;\" colspan=\"2\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 60.553%; height: 15px;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Long-term borrowing<\/td>\n<td style=\"text-align: right; height: 15px; width: 75.4148%;\" colspan=\"2\">15,000<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 60.553%; height: 15px;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Owner contributions<\/td>\n<td style=\"text-align: right; height: 15px; width: 75.4148%;\" colspan=\"2\"><span style=\"text-decoration: underline;\">5,000<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 60.553%; height: 15px;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Cash provided by\/(used by) financing<\/td>\n<td style=\"text-align: right; height: 15px; width: 75.4148%;\" colspan=\"2\"><span style=\"text-decoration: underline;\">20,000<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 60.553%; height: 15px;\">Change in cash<\/td>\n<td style=\"text-align: right; height: 15px; width: 75.4148%;\" colspan=\"2\">16,050<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 60.553%; height: 15px;\">Beginning cash balance<\/td>\n<td style=\"text-align: right; height: 15px; width: 75.4148%;\" colspan=\"2\">&#8212;<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 60.553%; height: 15px;\">Ending cash balance<\/td>\n<td style=\"text-align: right; width: 75.4148%; height: 15px;\" colspan=\"2\">$16,050<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>In our sample company, both beginning equity and beginning cash were zero. This statement tells us that operations used $1,200 in cash, as opposed to accrual basis net income from the income statement in the amount of $1,140, and that investing in fixed assets used $2,750 in cash. It also tells us that cash was provided by a combination of borrowing and owner investment in the company.<\/p>\n<h2>Other Financial Statements<\/h2>\n<p>A Statement of Comprehensive Income is often included along with the Income Statement if the company has certain investments that are adjusted to fair market value. Some smaller companies not subject to the full disclosure of GAAP only prepare the three most basic financial statements, and exclude the Statement of Cash Flows and the Statement of Comprehensive Income, providing instead just the Income Statement, the Statement of Owners\u2019 Equity, and the Balance Sheet.<\/p>\n<div class=\"textbox tryit\">\n<h3>practice questions<\/h3>\n<p>\t<iframe id=\"assessment_practice_c7e30aef-7098-475b-be0a-02edfc8bb37a\" class=\"resizable\" src=\"https:\/\/assess.lumenlearning.com\/practice\/c7e30aef-7098-475b-be0a-02edfc8bb37a?iframe_resize_id=assessment_practice_id_c7e30aef-7098-475b-be0a-02edfc8bb37a\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:300px;\"><br \/>\n\t<\/iframe>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-125\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Structures of Key Financial Statements. <strong>Authored by<\/strong>: Freedom Learning Group. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":62559,"menu_order":7,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Structures of Key Financial Statements\",\"author\":\"Freedom Learning Group\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"49e87739-c8b6-4ef0-83ea-d3cdbfcbc738, 1caaa814-9bd4-42b7-b839-a27a3ade8009","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-125","chapter","type-chapter","status-publish","hentry"],"part":103,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/125","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/users\/62559"}],"version-history":[{"count":15,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/125\/revisions"}],"predecessor-version":[{"id":4029,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/125\/revisions\/4029"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/parts\/103"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/125\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/media?parent=125"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapter-type?post=125"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/contributor?post=125"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/license?post=125"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}