Snapshot of how to prepare the Income statement,Owner’s equity statement and Balance sheet statement

Append below, a simple snapshot of preparing the following financial statements:

(a) How to prepare the Income Statement:

• All temporary or nominal accounts relating to incomes and expenses are closed by using closing entries and transferred to the Income Statement/Summary

Journalize the closing entries as follows:

For all Revenue accounts:

• Debit Revenue Account Credit Income Summary

For all Expenses accounts:

• Debit Income Summary Credit Expense Account

(b) How to prepare Owner’s Equity Statement:

• From (a) the Income statement is transferred to the Owner’s Equity Statement

For Profit in the Income Summary:

• Debit Income Summary Credit Owner’s Capital

For Loss in the Income Summary:

• Debit Owner’s Capital Credit Income Summary

• The Owner’s drawing account which is part of temporary/nominal account is similarly closed by using closing entry and transferred to the Owner’s Equity Statement

Accounting entries:

• Debit Owner’s Capital Credit Drawings Account

(c) How to prepare the Balance Sheet:

• All permanent or real accounts like all asset accounts, all liability accounts and owner’s capital account are not closed and transfer to the Balance Sheet(refer to vertical and horizontal format)

Related posts:

1. Closing Journal Entry In An Accounting Cycle -Steps/Procedures
2. Capital Side Of The Balance Sheet(Part1of2)
3. Income Statement(Part1of2)
4. Share Capital In The Balance Sheet
5. Bank Reconciliation Statement-How To Prepare It(Part3)