Prepare financial statements from a worksheet is relatively easy because all necessary accounting information is properly presented and structured in the worksheet.
The worksheet contains all information for preparing financial statements. The income statement is prepared with data of debit and credit columns of income statement of the worksheet.
The balance sheet is prepared from balance sheet columns of the worksheet.
Financial statements of a business concern mean income statement, retained earnings statement/owners’ equity statement and balance sheet prepared at the end of the accounting period.
The statement which is prepared for ascertaining profit (loss) of a business at the end of an accounting period is called income statement.
Read more: 6 Constraints of Accounting
The income statement is of two types:
- General or single-step income statement: In this statement, all expenses are deducted straight from income to ascertain net profit (loss). Here the expenses are not shown in the classified form.
- Multiple-step income statement: In this statement cost of goods sold is deducted from sales revenue to ascertain gross profit. From gross profit all operating expenses such as selling expense, administrative expenses etc. are deducted to find out net operating income.
After that, other non-operating incomes like rent revenue, interest revenue etc. are added to net operating income from which other non-operating expenses such as interest expense, loss on sale of assets etc. are deducted to ascertain net profit.