The document is a tutorial on preparing three essential financial statements: the income statement, the statement of retained earnings, and the balance sheet. It outlines the formats and purposes of these statements, emphasizing their roles in reporting a business's financial performance and position over a specified period. Key concepts such as revenues, expenses, and the classifications of assets and liabilities are also discussed.

1. 1

2. University of the
Central Punjab
Final Project
Financial Accounting
Presented to :
Prof. Abu Bakar Siddiq

3. Group Members
Ahsin Yousaf S1F17MSCT0047
Tahir Zaman S1F17MSCT0047
Adnan Ahmad S1F17MSCT0047
Sawera S1F17MSCT0047
Iqra S1F17MSCT0047

4. Financial Statement
Preparation: A Tutorial
Prepared by – Dr. Angela H. Sandberg
Professor of Accounting – Jacksonville State University

5. Financial Statements
 This tutorial illustrates how to prepare
three basic financial statements
The Income Statement
The Statement of Retained Earnings
The Balance Sheet
The purpose of these statements is
to help users make better decisions.

6. Income
Statement
Net income
Statement of Retained
Earnings
Beginning Retained
Earnings
+ Net income
– Dividends
Ending retained earnings
Balance Sheet
Ending Balance
Retained
Earnings
Order of Preparation

7. The Income Statement

8. Income Statement


The first statement prepared is the
Income Statement.
The Income Statement reports a
business’ performance for the period.

9. Income Statement
 A simple format for an income
statement is:
Revenues – Expenses = Net Income
 We will look at a more complex format
later.

10. Income Statement
 Revenues are earned for the sale of
goods or services. Note that revenues
occur when the sale is made. The
payment may or may not have been
received.
Examples of revenues include sales,
service revenue and interest revenue.

11. Income Statement
 Expenses are incurred when a
business receives goods and services.
Like revenues, payment may or may
not have been made.
Examples of expenses include salaries expense,
utility expense and interest expense.

12. Income Statement


Most businesses require more
information from their businesses than
a simple income statement can provide.
Therefore, they use a multi-step
income statement format.
A format for a multi-step income
statement is:

13. Income Statement
Sales revenue
- Cost of goods sold
Gross profit
- Operating expenses
Income from operations
+/- Non-operating items
Income before taxes
- Income taxes
Net income

14. Income Statement
 Cost of goods sold represents the
expense a business incurred to buy or
make a product for resale.
Example - a book store buys a book
for $25 and then sells it for $32. The
cost of goods sold is $25.

15. Single Step Income Statement
The single-step income statement format
uses a single subtotal for all revenue line items
and a single subtotal for all expense line items,
with a net gain or loss appearing at the bottom
of the report. This format is most commonly
used by businesses that have relatively simple
operations, with few line items reported.

19. The Statement of Retained
Earnings

20. Statement of Retained
Earnings
 The Statement of Retained Earnings
reports how net income and dividends
affected a company’s financial position
during the period.

21. Statement of Retained
Earnings
The format of the statement is:
Beg. balance, retained earnings
+ Net income
- Dividends
End. balance, retained earnings

22. Statement of Retained
Earnings


Note that the Income Statement must
be prepared before the Statement of
Retained Earnings.
This is because you have to know the
amount of net income in order to
compute the ending balance of retained
earnings.

23. The Balance Sheet

24. Balance Sheet
 The purpose of the balance sheet is to
report the financial position of an
accounting entity at a particular point in
time.
The basic format for the balance sheet
is:
Assets = Liabilities + Equity

25. Balance Sheet
 Assets are economic resources owned
by a company.
Examples include cash, accounts
receivable, supplies, buildings and
equipment.

26. Balance Sheet
 Liabilities are the company’s debt or
obligations.
Examples are accounts payable,
unearned revenues and bonds payable.

27. Balance Sheet
 Equity is the residual balance. Assets
– liabilities = equity. Equity is
commonly called stockholders’ equity if
the business is a corporation as it
represents the financing provided by
the stockholders along with the
earnings from the business not paid out
as dividends.

28. Balance Sheet
 There are two different types of assets
shown on a balance sheet. These are
current assets and non-current assets.
Current assets
+ Non-current assets
Total assets

29. Balance Sheet
 Current assets are assets that will be
used or turned into cash within one
year.
Examples include cash, accounts
receivable, inventory, short-term
investments, supplies and prepaids.

30. Balance Sheet
 Non-current assets comprise the
remainder of the assets.
These include accounts such as:
long-term investments, land,
building, equipment and patents.

31. Balance Sheet
 There are two different types of
liabilities shown on a balance sheet –
current liabilities and long-term
liabilities.
Current liabilities
+ Long-term liabilities
Total liabilities

32. Balance Sheet
 Current liabilities are obligations that
will be paid in cash (or other services)
or satisfied by providing service within
the coming year.
Examples include accounts payable,
short-term notes payable, and taxes
payable.

33. Balance Sheet
 Long-term liabilities are obligations
that will not be paid or satisfied within
the year.
Examples include mortgage payable
and bonds payable.

34. Balance Sheet
 Stockholders’ Equity is divided into
two categories: contributed capital and
retained earnings.
Contributed capital
+ Retained earnings
Total stockholders’ equity

35. Balance Sheet
 Retained earnings is the total
earnings that have not been distributed
to owners as dividends.

36. The Balance Sheet
Current assets
+ Non-current assets
Total assets
Current liabilities
+ Long-term liabilities
+ Stockholders’ equity
Total liabilities and
stockholders’ equity

37. Balance Sheet
 The Balance Sheet must be prepared
after the Statement of Retained
Earnings in order to have calculated the
ending balance of Retained Earnings.

38.  Income statement—A summary of the revenue
and expenses for a specific period of time.
 Statement of retained earnings – a summary
of the changes in the retained earnings that have
occurred during a specific period of time.
 Balance sheet—A list of the assets, liabilities,
and owner’s equity as of a specific date.
Review

39. The End