Question

what is the full process from start to finish of perparing and issuing Financial statements under US GAAP

Answer 1

Financial statements are (a) income statement, (b) balance sheet, (c) statement of retained earnings, and (c) cash flows statement.

Required process is as below:

1) Journals: Journal entries of all vouchers (cash, credit, and adjustment) should be made. Example: for cash sale of $20,000, cash account is debited and sales account is credited by $20,000 each.

2) Ledger posting: Each journal entry should be posted in respective ledger account. There must be double effect; like in the cash account $20,000 should appear in the debit side and in the sales account $20,000 should appear in the credit side.

3) Trial balance: This is the period-end statement of ledger balances; the aggregate debit amount should equal to credit amount.

4) Income statement: This is the statement of revenues and total recurring expenses for appearing into net income. Respective amounts should be taken from the trial balance; net income = Total revenues – Total expenses.

5) Balance sheet: This is the statement of assets, liabilities, and capital; the equation is (Assets = Liabilities + Capital). Respective amounts should be taken from the trial balance.

6) Statement of retained earnings: This is the statement of accumulated profit of the company till date; the equation is (Ending retained earnings = Beginning retained earnings + Net income – Dividends). Net income should come from the income statement and the other figures should come from the trial balance.

7) Cash flows statement: This is the statement of reconciliation of beginning cash balance to ending cash balance. There are three kinds of activities (a) operating activities, (b) investing activities, and (c) financing activities.