Name: 4 - Preparation of Financial Statements
Uploaded: 2017-06-23T13:06:04.000Z
Duration: 4 min 54 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

This is principlesofaccounting.com, Chapter 4.

Chapter 4 deals with the reporting cycle.

The first module in this particular chapter

looks at the preparation of financial statements.

If a company attempts to prepare its financial statements based only on

the reported information would be incomplete and incorrect.

Therefore what we need to do as we learned in the previous chapter is prepare

adjustments and prepare and adjust the trial balance as the preparatory step for

We would first prepare a trial balance taken from account

That information would be analyzed for potential adjustments.

>From that analysis, we would determine a list of adjusting entries.

That would require intimate knowledge of the particular business.

We would document those adjusting entries, perhaps with a journal voucher, or

someone else, prior to entering those adjustments in the accounting records.

But they will be posted to the ledger and from the ledger,

we could prepare the adjusted trial balance and

then the financial statements would be prepared from the adjusted trial balance.

automation can be used to actually prepare the financial statements.

In learning about accounting, it's best to do this manually at least a few times so

you get a true sense of the flow of transactions and

events from their original occurrence all the way through their journalization

into the ledger, into the trial balance and into the financial statements.

This worksheet may not actually be used in a business.

Probably, we'd have an automated system that

would do what's going to be done by this particular worksheet.

But the worksheet is still a good learning tool to emphasize the process.

So, first we have the trial balance column.

That information just taken from the general ledger.

We do our analysis and determine the adjustments.

Here I'm showing the adjustments in a worksheet.

These adjustments would also need to be included

In journal entries that would then be carried forward into the ledger.

The summation, or the netting, of the trial balance and

the adjustments gives us the adjusted trial balance column.

And it is from that information that we are then able to prepare

I've got a column, or a set of columns, for the income statement, for

the balance sheet and for the statement of retained earnings.

And so accounts are the specific rows in the worksheet that

relate to the balance sheet, such as cash and accounts receivable and so

forth, are extended into the same debit or credit column in the balance sheet column.

Likewise, the revenue and expense accounts are extended, again maintaining their

credit of debit character, into the income statement columns.

And the dividends are extended into the retained earnings

Once we've extended each of the amounts from the adjusted trial balance column

into the appropriate financial statements setup columns,

we're then ready to start closing out the worksheet.

And so we'll start in the income statement, and

notice that credits are 32,800 and debits are 30,200.

That tells us that credits, revenues exceed debits the expenses by 2,600,

I've made a debit there to go ahead and balance out that column, and

So as I make that debit in the worksheet, I make a corresponding credit in

the statement of retained earnings to represent the transference of the net

income into the statement of retained earnings.

And then we're able to complete the statement of retained earnings.

If this was a brand new business, it had income of 2,600 and

dividends of 1,000, giving rise to an ending retained earnings balance.

The amount by which credits exceeds debits, $1,600.

And that $1,600 amount is recorded as a debit in the statement of retained

earnings simply to balance out the retained earnings column and

correspondingly set in the credit column of the balance sheet.

Finally notice that caused total debits to equal total

Now, this worksheet would give you an excellent tool to simply sit down and

prepare an income statement, statement of retained earnings, and balance sheet for

All of the information you need would be captured in this particular worksheet.

If you're interested in learning more about worksheets within the textbook,

I've included a worksheet that shows a net-loss scenario.

I've included a worksheet that has a beginning retained earnings balance

that is other than the first year of operation.

So while I would not necessarily use this tool in an actual business

setting because automation would be a preferable tool,

nevertheless I would encourage you to work through this worksheet and

think about what it is demonstrating about the adjustment process and

how that leads to the preparation of financial statements.

Subtitles ListPlay Video

4 - Preparation of Financial Statements

specific

potential

entire

scenario