1. Business Transactions Financial transaction? NO YES Create journal entries Source Documents Record journal entries in JOURNALS Post to JOURNALS Post to ledger LEDGERS Prepare trial balance Trial balance A

2. A Prepare adjusting entries Record adjusting journal entries JOURNALS Prepare financial stateme nts Financial statements 1 Prepare closing entries Record closing entries JOURNALS

3. Interconnectedness of the Financial Statements The four financial statements are 1.Balance sheet 2.Statement of cash flows 3.Income statement 4.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.