Financial statements for a sole proprietorship

1. Chapter 9 Financial statements for a sole proprietorship

2. Financial Statements • Financial statements provide information to owners and managers about how the business is changing as a result of operations. • Income Statement • Statement of Changes in Owner’s Equity • Balance Sheet

3. Income Statement • The income statement reports the net income or net loss for the period.

4. Statement of Changes in Owner’s Equity • Summarizes changes in the owner’s capital account as a result of business transactions during the period.

5. Statement of Changes in Owner’s Equity • The information to prepare this statement is found in three places: • the work sheet • the income statement • the owner’s capital account in the general ledger

6. Balance Sheet • The balance sheet is a report of the balances in all asset, liability, and owner’s equity accounts at the end of the period. • Represents the basic accounting equation • the assets section total must equal the total of the liabilities and owner’s equity sections.

7. Balance Sheet

8. Ratio Analysis • Ratio analysis involves the comparison of two amounts on a financial statement and the evaluation of the relationship between these amounts. • Used to determine the financial strength, activity, or debt-paying ability of a business.

9. Return on Sales • Determine the portion of each sales dollar that represents profit. Net Income $1,150 net income Sales $2,650 sales = = .434 or 43.4%

10. Current Ratio • Relationship between current assets and current liabilities. Current Assets $ 37,775 Current Liabilities $11,725 = Current Ratio = 3.22 or 3.2:1

11. Quick Ratio • The relationship between short term assets and current liabilities. Cash and Receivables $ 22,575 Current Liabilities $11,725 = Quick Ratio = 1.92:1

12. Complete 9-4, 5 As Class