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Financial Stmt - SP

Parson - Chp 9 Financial Statements for a Sole Proprietorship

QuestionAnswer
Financial statements Are prepared to summarize the changes resulting from business transactions that occur during an accounting period.
Income Statement A report of the net income or net loss for a fiscal period; sometimes called a "profit and loss" statement.
Statement of Changes in Owner's Equity A financial statement prepared to summarize the effects of business transaction on the capital account.
Balance Sheet a report of the balances in all asset, liability, and owner's equity accounts at the end of the period.
Report form A format for preparing the balance sheet in which the classifications of accounts are listed one under another.
Ratio Analysis Involves the comparison of two amounts on a financial statement and the evaluation of the relationship between these amounts.
Profitability ratios Ratios used to evaluate the earning performance of a business during the accounting period.
Sales A revenue account to record the amount of the merchandise sold.
Return on sales The portion of each sales dollar that represents profit. To calculate this ratio, divide net income by sales.
Liquidity ratio The measure of a business's ability to pay its current debts as they become due and to provide for unexpected needs of cash.
Current ratio The relationship between current assets and current liabilities; calculated by dividing the dollar amount of current assets by the dollar amount of current liabilities.
Current Assets Assets that are either used up or converted to cash during the normal operating cycle of the business, usually one year.
Current Liabilities Debts of the business that must be paid within the next accounting period.
Quick ratio A measure of the relationship between short-term assets and current liabilities.