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ACCOUNTING 2
CHAPTER 2.2
FINANCIAL STATEMENTS
• The Income Statement• The Statement of Retained Earnings• The Balance Sheet
INCOME STATEMENT
1. Revenue2. Cost of Merchandise Sold3. Gross Profit on Sales4. Operating Expenses5. Net Income
REVENUE
Net sales = Sales – Sales Discounts– Sales Returns and AllowancesNet Sales
COST OF MERCHANDISE SOLD
Beginning Merchandise Inventory+Net Purchases*=Cost of Merchandise Available for Sale-Ending Merchandise Inventory =Cost of Merchandise Sold
* Purchases+Transportation In=Cost of Delivered Merchandise-Purchase Discounts-Purchase returns and
Allowances=Net Purchases
GROSS PROFIT ON SALES
Net Sales-Cost of Merchandise Sold=Gross Profit On Sales
OPERATING EXPENSES
• List all Expenses in order except Federal Corporate Tax
NET INCOME
Gross Profit on Sales-Total Operating Expenses=Operating Income-Federal Corporate Income Taxes=Net Income
STATEMENT OF RETAINED EARNINGS
• Must be completed before Balance Sheet after Income Statement• Increased by net income• Decreased by net loss • Decreased by distribution of earnings to stock holders• Beginning Retained Earnings and net income from the worksheet• Ending Retained Earnings goes on balance sheet
BALANCE SHEET
• A report of the accounting equation
• Assets, Liabilities and Capital Stock come from the worksheet
• Retained Earnings come from the Statement of Retained Earnings
CLOSING ENTRIES
• Close all temporary accounts to the Income Summary Account
• Information comes from the Income Statement
CLOSING ENTRIES
• Close Expenses to Income Summary
• Close Income Summary to Retained Earnings
POSTING CLOSING ENTRIES
POST-CLOSING TRIAL BALANCE
• Shows Balances in permanent accounts only• Proves
debits and credits equal• Ensures
temp accounts are closed