Business Transactions

Financial transaction?NO

YES

Create journal entries

Source Documents

Record journal

entries in JOURNALS Post to

JOURNALS

Post to ledgerLEDGERS

Prepare trial

balance

Trial balance

A

A

Prepare adjusting entries

Record adjusting journal entries

JOURNALS

Prepare financial stateme

nts

Financial statements1

Prepare closing entries

Record closing entries

JOURNALS

Interconnectedness of the Financial Statements

• The four financial statements are1. Balance sheet2. Statement of cash flows3. Income statement4. Changes in Owners’ Equity

• The net income from the Income Statement is part of the Changes in Owners’ Equity which in turn is part of the Stockholders’ Equity section of the Balance Sheet

• The net income is also used to compute for the cash provided by operating activities in the Statement of Cash Flows.

• Some portions of the Balance Sheet, such as the current assets and liabilities, are used to compute for cash flows.