Quiz 13: Financial Statements and Closing Procedures


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Classifying the income statement items: 1. Purchase returns and allowances: Cost of goods sold 2. Telephone expense: Other expenses 3. Sales returns and allowances: Cost of goods sold. 4. Purchases: Cost of goods sold. 5. Interest income: Other income 6. Merchandise inventory: Cost of goods sold. 7. Interest expense: Other expenses 8. Sales: Operating revenue 9. Depreciation expense - store equipment: Operating expenses 10. Rent expense: Operating expenses

1) Prepare income statement: Income statement: This statement is also called as statement of revenue and expense. Income statement is one of the three financial statements, remaining are balance sheet and cash flow statement. This income statement measures company's financial performance for one accounting cycle. In this statement, total expenses are subtracted from total revenues. This income statement shows net income or loss for a particular period. Prepare an income statement: • An income statement reports the results of business transactions over a period, usually for a month or a year. • In the income statement, total expenses are deducted from total revenues. • When the total revenue exceeds total expenses over the period, the result is net income. • When the total expenses exceed total revenue over the period, the result is net loss. I ncome Statement of W Design for the year ended 31.12.2013: img 2) Prepare statement of owner's equity: Owners' equity is main portion of the balance sheet. It represents the amounts that are collected from investors by issuing stocks (Common and preferred) and retained earnings. Common stock, preferred stock, additional capital in excess of par, retained earnings, and treasury stock are some of the items included in this section. This statement shows the activity in the owner's equity or Capital account for a period. 1. Include the balance in the Capital account at the beginning of the period. 2. Add any additional investments. 3. Add net income or subtract net loss calculated in the Income statement 4. Subtract the withdrawals made by owner. 5. Get the ending capital which is to be transferred to the balance sheet. Statement of Owner's Equity of "W Design Company" for the Year Ended 31st December 2013 img 3) Prepare balance sheet: Balance sheet is a statement of financial position. It is one of the main reports in financial statements. It shows the financial position of the company. Balance sheet will be prepared for a specific period. It summarizes a company's assets, liabilities and shareholders' equity. It is prepared by using accounting equation that is 'Assets = Liabilities + Stockholders' Equity'. Balance sheet of "W Design Company" as on 31-12-2013: img