Balance Sheets and Income Statements
Four Basic Accounting Assumptions
Your business is an economic entity separate from personal finances. Second, the information is for a fixed time period. Third, the dollar will be the basis of relaying information. Fourth, we will assume that the business will operate in the future.
Balance Sheets Explained
A balance sheet is a financial statement that reports a company’s current financial position. (Godwin 2010) A balance sheet will calculate assets, liabilities, equity. (Assets= Liabilities + Equity) Assets include cash holdings, account receivable, the various tools purchased to work on vehicles, and the building used to complete the work. Liabilities include monthly bank notes and the cost of purchasing tools and supplies on credit. Equity includes business profits and any other business capitol. A typical journal entry will might be a payment to a l supplier. A company that provides these products or inputs will often allow payments in monthly installments. Payments like this effect the balance sheet as they are not only part of the company’s assets but also a liability.
Income Statements Explained
The income statement will be instrumental in recording profits. An income statement will track income and expenses. (Godwin 2010) An income statement utilizes the equation revenue – expenses = net income or loss. Revenue and expenses should be calculated over a fixed period of time. Revenue includes all income from sales and service. Expenses include all overhead and supply expenses incurred during that time frame plus the cost of depreciation. A typical journal entry for the auto body shops income statement would include the income from services rendered or products sold during the given time period. This income is necessary to track the company’s revenue.
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