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Accounting Income Statements, Balance Sheets

1011 words - 4 pages

Accounting is the science of recording, arrangement and summarising everyday business transactions, generally in terms of money, and includes the checking, analyzing, understanding and reporting to the interested users in the dealings of the individual, firm, company, government or the nation to which the transactions relate. final reports for most accounting are the balance sheet, describing the position from the start of the year to the current year, and the income statement, a statement of the recent year's performance. the main accounting assumption and principles guide the formation of these 2 final reports.Income statement is a report that shows the result of company's earnings for a specific period of time. It reports all the revenues earned minus the expenses which results in either profit or loss. If revenue exceeds the expenses, it will incur a profit. But if the expenses are greater than the revenue, the company will report a net loss. When preparing an income statement, it is important for the company to indicate the length of time it took to realize the profit or loss. The length of time can be for a month, three months, six months or for the full year. Someone who just started a business may want to monitor their business performance during the early part of the business establishment, therefore a monthly income statement would be helpful for the owners. Income statement is useful to anyone who would like to determine if the company is performing well or not as it shows whether profits are being made at any specific period of time.Income statement is also known as profit and loss statement, operating statement or statement of financial performance.Income statement is expressed in the following equation:Revenue - Expenses = Net Profit or LossThe two components of income statement are the revenue and expenses. Revenue increases the owners wealth through as a result of the sale of goods or services. Example of revenue are: cash received for the sale of goods, interest or rental payment. Expenses are decreases in the owners' equity in the form of reduction of assets or increases in liabilities. Example of expenses are: salaries or wages, rent, telephone, repairs and others.Balance Sheet is a report that shows the financial position at a specific point in time. It shows how much assets have been accumulated at the end of the accounting period, how much payables are still outstanding at the end of the accounting period, etc). Balance sheet is divided into three sections: assets, liabilities and owners equity.Balance is expressed in the following equation:Assets - Liabilities - Owners equityAssets is defined as future economic benefits controlled by an entity as a result of past transactions or other events. An example of assets are: land, buildings and equipment. Assets can be converted into cash in the event that the owners requires the cash for a specific purpose. Liabilities are the future sacrifices of economic benefits as a result of...

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