Question

Financial statements provide information that is used for making decisions. There are four basic financial statements. This problem is designed to help you understand the purpose of each statement and how the statements interact. There is a natural progression from one statement to the next. The following boxes represent the four financial statements. The set of financial statements is prepared at the end of each accounting period to communicate information about the company's operations during that period to its users. Use the selection lists to demonstrate your knowledge of the relationships between the statements. In the headings, you will need to select the appropriate statement name and time period. (Hint: Ask yourself if the statement covers a period of time or if it is a snapshot at a given point in time.) Then complete the blanks following the headings. Statement 1: ABC Company This statement shows how profitable a company is. It is sometimes referred to as the profit and loss (P&L) statement. This statement summarizes the Which item from this financial statement appears on the next financial statement? Statement 2: ABC Company This statement shows how much, if any, of the net income is distributed to the owners. It is sometimes expanded to show changes to all equity items. This statement summarizes the Which item from this financial statement appears on the next financial statement?

Answer 1

Solution:

Statement 1:
	ABC Company
	Income Statement
	Period of time
This statement summarizes the revenues and expenses.
Item from this financial statement that appears on next financial
statement is Net Income.
Statement 2:
	ABC Company
	Statement of retained earnings
	Given point of time
This statement summarizes the change in retained earnings.
Item from this financial statement that appears on next financial
statement is Statement of retained earnings.
Statement 3:
	ABC Company
	Balance sheet
	Given point of time
This statement summarizes the asset,liability and equity.
It moves to Statement of Cash flow.
Statement 4:
	ABC Company
	Statement of Cash flow
	Period of time
This statement summarizes the source and use of cash.