Once you have prepared the adjusted trial balance, you are ready to prepare the financial statements. Preparing financial statements is the seventh step in the accounting cycle. Remember that we have four financial statements to prepare: an income statement, a statement of retained earnings, a balance sheet, and a statement of cash flows. These financial statements were introduced in Introduction to Financial Statements and Statement of Cash Flows dedicate in-depth discussion to that statement.

To prepare the financial statements, a company will look at the adjusted trial balance for account information. From this information, the company will begin constructing each of the statements, beginning with the income statement. Income statements will include all revenue and expense accounts. The statement of retained earnings will include beginning retained earnings, any net income (loss) (found on the income statement), and dividends. The balance sheet is going to include assets, contra assets, liabilities, and stockholder equity accounts, including ending retained earnings and common stock.

 

Go over the adjusted trial balance for Magnificent Landscaping Service. Identify which financial statement each account will go on: Balance Sheet, Statement of Retained Earnings, or Income Statement.

MAGNIFICENT LANDSCAPING SERVICE Adjusted Trial Balance April 30, 2018 Account Title Cash Accounts Receivable Office Supplies Prepaid Insurance Equipment Accumulated Depreciation: Equipment Accounts Payable Salaries Payable Unearned Lawn Mowing Revenue Common Stock Dividends Lawn Mowing Revenue Gas Expense Advertising Expense Depreciation Expense: Equipment Supplies Expense Salaries Expense Debit $2,950 575 40 240 2,500 1,000 53 35 35 85 420 $7,933 Credit $ 35 28 420 100 5,000 2,350 $7,933