Module 1.5

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Income Statement

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Shows results of business operations over time (typically 1 year). Shows profit or loss.

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Statement of Owner’s Equity

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Reports the end-of-period balance in the owner’s equity account

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13 Terms

1
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Income Statement

Shows results of business operations over time (typically 1 year). Shows profit or loss.

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Statement of Owner’s Equity

Reports the end-of-period balance in the owner’s equity account

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Three-Line Heading Format

  • Business Name

  • Statement Title (e.g., Balance Sheet)

  • Date or Period Covered

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Formatting Rules for Financial Data

  • All numbers start in the far-right column

  • Sub-calculations shift one column left

  • Single underline = end of a subtotal

  • Double underline = final figure (e.g., net income or totals

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Final Results That MUST Be Double-Underlined:

  • Net Income

  • Owner’s Equity

  • End-of-Period Balances

  • Total Assets

  • Total Liabilities + Owner’s Equity

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Memory Hook:

“Name. Title. Time. Right, Left, Underline, Double Sign.”
This reminds you:

  • Use the 3-line header: Name, Title, Time

  • Numbers go from Right → Left (subtotals)

  • Use Underline for subtotals

  • Use Double Underline for Net/Finals

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Activity-Based Costing (ABC)

Aligns business activities (like production or delivery) with their actual costs.

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All statements are interconnected through these common components:

  • Inventory – Products available for sale (not services!)

  • Income & Expenses – Revenue earned and bills paid

  • Cost of Goods Sold (COGS)Only applies to product-based businesses, not services

  • Net Income – The final profit line; if this is missing, your business is in trouble

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The Accumulated Depreciation account should be shown in the financial statements as:

A contra (deduction) to an asset account

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Which of the following will be credited when recording an accrued expense?

A liability account

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Sole Proprietor

One owner, unincorporated, full control/liability.

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Partnership

Two or more people/businesses sharing control and liability.

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Corporation

Legally separate entity, governed by state law, sells stock, heavy regulation.