Balance Sheet (Statement of Financial Position)

The first three classifications are referred to as balance sheet accounts since the balances in these accounts are
reported on the financial statement known as the balance sheet.
Balance sheet accounts
 Assets
 Liabilities
 Stockholders' (or Owner's) equity
The balance sheet accounts are also known as real / permanent accounts since the balances in these
accounts will not be closed at the end of an accounting year. Instead, these account balances are carried forward
to the next accounting year.

The balance sheet (also known as the statement of financial position) reports a corporation's assets,
liabilities, and stockholders' equity as of the final moment of an accounting period.
For example, a balance sheet dated December 31 summarizes the balances in the appropriate general ledger
accounts after all transactions up to midnight of December 31 have been accounted for.

Account Form:
In the account form (shown below) its presentation mirrors the accounting equation. That is, assets are on the left;
liabilities and stockholders' equity are on the right.

With the account form it is easy to compare the totals. It is also convenient to compare the current assets with the
current liabilities.
Report Form: presents the assets at the top of the balance sheet. Beneath the assets are the liabilities followed by
stockholders' equity.

Income Statement (Statement of Financial Performance)

The income statement is one of the main financial statements of a business. Other names for the income
statement include:
 Statement of income
 Statement of operations
 Statement of earnings
 Profit and loss (P&L) statement
The income statement reports revenues, expenses, gains, losses, and the resulting net income which occurred
during the accounting period shown in its heading. Typical periods or time intervals covered by an income
statement include:

 Year ended December 31, 2022

 Year ended June 30, 2022
 Quarter ended March 31, 2022
 Month ended August 31, 2022
 Income statement accounts
 Operating revenues
 Operating expenses
 Non-operating revenues and gains
 Non-operating expenses and losses
The income statement accounts are also known as nominal / temporary accounts since the balances in these
accounts will be closed at the end of the accounting year.
Each income statement account is closed to begin the next accounting year with a zero balance.
The year-end balances from all the income statement accounts will be combined and entered as a single net
amount in Retained Earnings (a balance sheet account within stockholders' equity) or in a proprietor's capital
account.

Income Statement

The income statement reports the revenues and expenses for a period of time, based on the matching concept.
This concept is applied by matching the expenses incurred during a period with the revenue that those expenses
generated.

The excess of the revenue over the expenses is called net income, net profit, or earnings. If the expenses exceed
the revenue, the excess is a net loss.
Statement of Owner’s Equity

The statement of owner’s equity reports the changes in the owner’s equity for a period of time.
It is prepared after the income statement because the net income or net loss for the period must be reported in
this statement.
Similarly, it is prepared before the balance sheet because the amount of owner’s equity at the end of the period
must be reported on the balance sheet. As a result, the statement of owner’s equity is often viewed as the
connecting link between the income statement and balance sheet.

The amount of owner's equity is increased by income and owner contributions/investments.

The balance is decreased by losses and owner draws.
Thus, the format of the statement of owner's equity may include the following line items:

Beginning capital balance:

+ Owner contributions/ Investments during the period
- Owner draws / Withdrawals during the period
+ Net Income earned during the period
- Net Loss incurred during the period

= Ending capital balance

 Accounting Process

TYPES OF BALANCE
 Debit - If the debit side of account is greater than its credit side balance is debit balance.
 Credit - If the credit side of account is greater than its debit side, balance is credit balance