Lesson Six: Preparing Financial Statements

Before we dive right in, let’s review the general steps of the accounting cycle. As a note, these steps may differ slightly from your textbook, so please be sure to compare this resource to your textbook’s presentation of the accounting cycle.

1. Journalize general journal entries for business transactions throughout the accounting period
2. Post each journal entry to the general ledger
3. Prepare an unadjusted trial balance
4. Journalize adjusting entries
5. Post each adjusting entry to the general ledger
6. Prepare an adjusted trial balance
7. Prepare the company’s financial statements
8. Journalize closing entries
9. Post closing entries to the general ledger
10. Prepare a post-closing trial balance

Lesson Six will contain an introduction to preparing financial statements. For individually-owned companies (called sole proprietorships). Preparation of these financial statements can be rather challenging, so please be prepared to spend a significant time on this topic to ensure mastery of this concept.

There are four financial statements:

• Statement of Owner’s Equity
• Income Statement
• Balance Sheet
• Statement of Cash Flows

We will be reviewing how to prepare income statements, statements of owner’s equity, and balance sheets in this lesson. Statements of cash flows will be covered in a separate lesson.

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Before we dive into how to prepare these statements, I recommend writing down and memorizing these equations for each financial statement first:

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Income Statement

Statement of Owner’s Equity

Balance Sheet

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It looks like you’ve mastered this lesson. Move on to Lesson Seven: