Business Documents

Accounting data is classified and summarised in the form of statements. The primary financial statements are the (1) balance sheet (2) income statement, (3) statement of owner’s equity, and (4) statement of cash flow.

The Balance Sheet

A balance sheet is a financial statement or business form that lists, as of a certain date, all assets owned and all claims against these assets. These claims are held by creditors, to whom money is owed, and the owners themselves, in the form of their owner’s equity. When arranged in this way, it is easy to see that the fundamental bookkeeping equation holds true:

A = L + OE

Let us analyze the balance sheet for Thomas Morales’s business on September 30 of the current year.

Evergreen Landscaping Service

Balance Sheet

September 30, 2005

Assets		Liabilities
Cash	785 000	Gardners Supply Co.	34 500
Truck	1 100 000	Equipment Mlg. Corp.	100 000
Trailer	150 000	Island National Bank	770 000
Accounts Receivable	360 000	Total Liabilities	904 500
Equipment	332 000
Office furniture	75 000	Owner’s Equity Thomas Morales, Capital	1 972 000
Supplies (paper, pens, etc.)	74 500
Total Assets	2 876 500	Total Liabilities & Owner’s Equity	2 876 500

This balance sheet shows the financial condition of Morales’s business on the specified date. When this form is arranged with two sides – assets on the left, liabilities and owner’s equity on the right – it is called an account form balance sheet.

Note the following details carefully:

1. The heading consists of “answers” to the questions who, what, and when.

2. The account form lists assets on the left side, liabilities and owner’s equity on the right side.

3. The sum of all assets is listed below the last one and identified as “Total Assets.”

4. The sum of all liabilities is listed below the last one and identified as “Total Liabilities.”

5. The sum of total liabilities and capital is listed on the same line level as the total assets and identified as “Total Liabilities and Owner’s Equity” or with acceptable abbreviations.

6. The final total amounts on both sides are double ruled.

7. The dollar symbol, comma, and decimal point are not used in any bookkeeping form or statement.

(Single ruled lines indicate an addition or subtraction. Double ruled lines indicate the end of the work.)

Income Statement – Form and Content

An income statement is prepared first, using the information in the Income Statement columns of the work sheet. The heading will answer the questions who, what, and when. All revenue is listed first, and totalled. Expenses are then listed, totalled, and subtracted from total revenue. The difference is the net income (or net loss).

Revenue – Expenses = Net Income or Net Loss

Follow this illustration:

De Van Loc Company