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The Accounting Cycle: Reporting Financial Results

The document discusses the accounting cycle and preparing financial statements. It provides examples of an adjusted trial balance, income statement, and statement of retained earnings for a company called Overnight Auto Service for the month ending December 31, 2007. The income statement shows revenues, expenses, income before tax, income tax, and net income. The statement of retained earnings shows beginning retained earnings, net income, dividends, and ending retained earnings.

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Omar Khan
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177 views

The Accounting Cycle: Reporting Financial Results

The document discusses the accounting cycle and preparing financial statements. It provides examples of an adjusted trial balance, income statement, and statement of retained earnings for a company called Overnight Auto Service for the month ending December 31, 2007. The income statement shows revenues, expenses, income before tax, income tax, and net income. The statement of retained earnings shows beginning retained earnings, net income, dividends, and ending retained earnings.

Uploaded by

Omar Khan
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Chapter 5

The Accounting Cycle


Reporting Financial Results
Omar Khan

PREPARING FINANCIAL STATEMENTS

 Publically owned companies have obligations to publish


Annual Reports

 The Financial Statements can be directly made from the


Adjusted Trial Balance.

 The First Financial Statement to be made is Income


Statement – Excess of Revenues over expenses.
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LIMITATIONS OF INCOME STATEMENT

 Margin of Error.

 Based on Estimates

 Can only report items that can be


objectively measured.

 However, It is the best yardstick available


to measure profitability.
Omar Khan

PREPARING FINANCIAL STATEMENTS


COVERING DIFFERENT PERIODS OF TIME

Many
Manycompanies
companiesprepare
preparefinancial
financialstatements
statementsat
atvarious
variouspoints
points
throughout
throughoutthe
theyear.
year.

Annually

Quarterly
Interim
Financial
Statements Monthly

Jan. 1 Dec. 31
Overnight Autos Service  

Adjusted Trial Balance  

December 31, 2007  


Cash $ 18,592  

Accounts receivable 7,250  

Shop Supplies 1,200  

Unexpired Insyyrance 3,000  

Land 52,000  

Building 36,000  

Accumulated Depreciation: Building    

Tools & Equipment 12,000  

Accumulated Depreciation: T&E   2,200


N/P   4,000
A/P   2,690
Wages Payable   1,950
Tax Payable   5580
Interest Payable   30
Unearned Rent Revenue   6000
Capital Stock    
Retained Earnings   0
Dividends 14000  
Repair Service Revenue   172000
Rent Revenue   3000
Advertising 3900  
Wages 58750  

Supplies 7500  

Depr. Expense: Building 1650  

Depr. Expense: T&E 2200  

Utilities 19400  

Insurance 15000  

Interest Payable 30  

Tax 26628  

  $ 270,100 $ 279,100
Omar Khan
Overnight Auto Service
Income Statement
For the month ending Dec. 31, 2007
Revenue:
Repair Service Revenue 172,000
Rent Revenue 3,000
Total Revenue Earned 175,000
Expenses:
Advertising 3,900
Wages 58,750
Supplies 7,500
Depr. Expense: Building 1,650
Depr. Expense: T&E 2,200
Utilities 19,400
Insurance 15,000
Interest Payable 30 108,430
Income before Tax 66,570
Income Tax 26,628
Net Income 39,942
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STATEMENT OF RETAINED EARNINGS

This statement summarizes the increases and


decreases in Retained Earnings during the
period.

• Business Earnings • Dividends


• Business Losses
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Overnight Auto Service


Statement of Retained Earnings
For the Month Ended Dec. 31, 2007
Retained earnings, Jan 20,2007 0
Add: Net income 39942
Subtotal 39942
Less: Dividends -14000
Retained earnings, May 31 25942

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