Definition and Explanation
The financial statements are reports prepared for a variety of readers and are based on information provided by the accounts and other sources. The income statement consists primarily of the titles and balances of the temporary accounts.
The balance sheet consists primarily of the titles and balances of the permanent accounts, including owners’ equity after the closing of the temporary accounts. The SCFP and the SCOE are prepared from information provided by the first two statements, the journal and the ledger. The primary purpose of this article is to illustrate the fundamentals of an accounting system that provides the information necessary to construct the financial statements. Subsequent articles describe in detail the objective, elements, and structure of each of the four statements.