Question

Estella Osage publishes an online travel magazine. In need of​cash, the business applies for a loan with National Bank. The bank requires borrowers to submit financial statements. With little knowledge of​ accounting, Estella​ Osage, the​ owner, does not know how to proceed.The explanations for how to prepare each​ statementRequirements:1. What are the four financial statements that the business will need to​ prepare?2. Is there a specific order in which the financial statements must be​ prepared?3. Explain how to prepare each statement.Requirements​ 1, 2, and 3. What are the four financial statements that the business will need to​ prepare? Is there a specific order in which the financial statements must be​prepared? Explain how to prepare each statementIn the first​ column, select the four financial statements that the business will need to prepare. In the second​ column, select the number corresponding with the order the financial statements must be prepared. If there is no specific​ order, select​ "n/a" for each statement. In the third​ column, select the letter grouping that corresponds with the proper explanations for how to prepare each statement.1. Financial statement 2. Order 3. How to preparea. Each asset account is listed separately and then totaled. Cash is always listed first.b. Each dollar amount is calculated by evaluating the cash column on the transaction detail.c. Each expense account is listed separately from largest to smallest and then subtotaled if necessary.d. Financing activities include cash contributions by the owner and owner withdrawals of cash.e. Investing activities include the purchase and sale of land and equipment.f. Liabilities are listed separately and then totaled. Liabilities that are to be paid first are listed first.g. Net income is calculated as total revenues minus total expenses.h. Operating activities involve cash receipts for services provided and cash payments for expenses paid.i. The beginning capital is listed first and will always be the ending capital from the previous time period.j. The ending cash balance must match the cash balance on the balance sheet.k. The header includes the name of the​ business, the title of the​statement, and the​ date, listed as a period of time.  l. The header includes the name of the​ business, the title of the​statement, and the​ date, listed as a specific date.m. The​ owner's contribution and net income are added to the beginning capital.n. The​ owner's equity is taken directly from the statement of​owner's equity.o. The​ owner's withdrawals are subtracted from capital. If there had been a net​loss, this would also be subtracted.p. The revenue accounts are always listed first and then subtotaled if necessary.q. This statement must always balance. Assets​ = Liabilities​ + Equity

Answer 1

1. The four financial statements are;

• Income Statement
• Stockholder's Equity statement
• Balance Sheet
• Statement of Cashflows

2. The specific order is done as follows because information from the preceding statement will be needed for the next one.

Income Statement ⇒ Stockholder's Equity statement ⇒ Balance Sheet ⇒ Statement of Cashflows

3. Income Statement

• c. Each expense account is listed separately from largest to smallest and then subtotaled if necessary.
• g. Net income is calculated as total revenues minus total expenses.
• k. The header includes the name of the​ business, the title of the​statement, and the​ date, listed as a period of time.
• p. The revenue accounts are always listed first and then subtotaled if necessary.

Stockholder's Equity

• i. The beginning capital is listed first and will always be the ending capital from the previous time period
• k. The header includes the name of the​ business, the title of the​statement, and the​ date, listed as a period of time.
• m. The​ owner's contribution and net income are added to the beginning capital.
• o. The​ owner's withdrawals are subtracted from capital. If there had been a net​loss, this would also be subtracted.

Balance Sheet

• a. Each asset account is listed separately and then totaled. Cash is always listed first.
• f. Liabilities are listed separately and then totaled. Liabilities that are to be paid first are listed first.
• l. The header includes the name of the​ business, the title of the​statement, and the​ date, listed as a specific date
• n. The​ owner's equity is taken directly from the statement of​owner's equity.
• q. This statement must always balance. Assets​ = Liabilities​ + Equity

Statement of Cashflows

• b. Each dollar amount is calculated by evaluating the cash column on the transaction detail.
• d. Financing activities include cash contributions by the owner and owner withdrawals of cash.
• e. Investing activities include the purchase and sale of land and equipment.
• h. Operating activities involve cash receipts for services provided and cash payments for expenses paid.
• j. The ending cash balance must match the cash balance on the balance sheet.
• k. The header includes the name of the​ business, the title of the​statement, and the​ date, listed as a period of time.