Flow of Accounts into Financial Statements Example Exercise 4-1 Flow of Accounts into Financial Statements The revenue and expense accounts flow into the income statement. Net income or net loss from the Income statement flows to the… …retained earnings statement. This statement also shows the changes in Retained Earnings for the period due to declaring dividends. The ending amount of Retained Earnings flows to the… The process of adjusting the accounts and preparing financial statements is one of the most important steps in accounting. [CLICK] The revenue and expense accounts flow into the income statement. Net income from the income statement flows to the [CLICK] retained earnings statement, which includes any dividends declared during the period. The ending Retained Earnings balance flows to the [CLICK] balance sheet, which shows the assets, liabilities, and stockholders’ equity of the company. …balance sheet, which shows the assets, liabilities, and stockholders’ equity of the company.

Example Exercise 4-1 In Example Exercise 4-1, we need to determine [CLICK] whether the accounts listed in the adjusted trial balance columns of the end of period spreadsheet would flow into the income statement, the retained earnings statement, or the balance sheet.

Example Exercise 4-1 Let’s start by designating which accounts would flow into the income statement. Utilities Expense, [CLICK] Fees Earned, [CLICK] and Rent Revenue [CLICK] are the accounts that would flow into the income statement.

Example Exercise 4-1 Now, let’s see which accounts flow into the retained earnings statement. Dividends [CLICK] is the only account that appears on the retained earnings statement from the list of accounts shown.

Example Exercise 4-1 Finally, we are asked to designate from the list those accounts that would flow into the balance sheet. Office Equipment, [CLICK] Accumulated Depreciation—Equipment, [CLICK] Unearned Rent, [CLICK] and Supplies [CLICK] all flow to the balance sheet.

Example Exercise 4-1  For Practice: PE 4-1A, PE 4-1B Refer to Practice Exercise PE 4-1A and PE 4-1B for the flow of accounts into financial statements.  For Practice: PE 4-1A, PE 4-1B