Chapter 2
Financial Effects of Transactions
In This Chapter
Identifying business transactions
Examining the financial effects of revenue and expenses
Getting a handle on the composite effect of profit and loss
The following three financial statements are the financial anchors and reference points of every business:
Balance sheet: Summarizes the business’s assets, liabilities, and owners’ equity at the end of a period
Income statement: Summarizes the profit-making transactions of the business for a period of time; also known as the profit and loss (P&L) statement
Statement of cash flows: Summarizes the business’s cash transactions for the same period of time
The first job of accounting is to faithfully record all the transactions of the business so that you then can prepare the financial statements listed above from the transaction records. If you’re more the visual type, try this on ...
