Chapter 7 Financial Statements

The Full Disclosure accounting concept is applied when a company always prepares financial statements at the end of each monthly fiscal period.

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Internal users of accounting information include company managers, officers, and creditors.

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An income statement reports information on a specific date indicating the financial condition of a business.

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The Matching Expenses with Revenue accounting concept is applied when the revenue earned and the expenses incurred to earn that revenue are reported in the same fiscal period.

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Information needed to prepare an income statement comes from the Account Title column and the income Statement columns of a work sheet.

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The income statement for a service business has five sections: heading, Revenue, Expenses, Net Income or Net Loss, and Capital.

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The income statement’s account balances are obtained from the work sheet’s Income Statement columns.

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The net income on an income statement is verified by checking the balance sheet.

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Double lines ruled across both amount columns of an income statement indicate that the amount has been verified.

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Financial ratios on an income statement are calculated by dividing sales and total expenses by net income.

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