Understanding Income Statements, Balance Sheets & Accounting

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Capella University *

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5010

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Accounting

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Jun 12, 2024

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docx

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Uploaded by CaptainDragonMaster1134

Accounting Methods for Leaders Justine Probert Capella University Training Accounting Tools and Practices James Shelton May, 2023

Income Statements Here at Urban Outfitters it is vital to understand what an income statement is and how to read it. There is important information on this document that can help analyze where the company stands with our finances. “An income statement is one of the most common, and critical, of the financial statements you’re likely to encounter. Also known as profit and loss (P&L) statements, income statements summarize all income and expenses over a given period, including the cumulative impact of revenue, gain, expense, and loss transactions. Income statements are often shared as quarterly and annual reports, showing financial trends and comparisons over time” (Stobierski, 2020). Balance Sheets The balance sheet is also essential to understanding the company’s finances. “While an income statement tallies income and expenses; a balance sheet, on the other hand, records assets, liabilities, and equity” (Stobierski, 2020). This will help you determine the net worth of Urban Outfitters. “Balance sheets are typically prepared and distributed monthly or quarterly depending on the governing laws and company policies” (Misamore, 2016). We will find the company’s assets, liabilities, and shareholders’ equity. Here is an example of the income statement versus the balance sheet ( [solved] how do you find current ratio and quick ratio for urban outfitters...: Course hero 2023).

Accrual Accounting Vs. Cash Accounting There are primarily two accounting methods called accrual accounting and cash accounting. “In accrual accounting method, you recognize the income when you will sell the products or services and other will have the obligation to pay your sale amount or service fees. Like this, you will recognize your expenses when you will have obligation to pay the bought amount or to pay for obtained services” (Kumar, 2023). “In cash accounting method, you recognize the income when you will receive it in cash. You will recognize the expenses when you will pay it” (Kumar, 2023). Each one of these methods will impact your income statement and your balance sheet. “If you will follow cash accounting method, your cash book will be income statement if you will delete the payments for fixed assets and receipt from loan. If you follow accrual accounting, you need to make income statement separately. Your income statement will also include the income which are receivables. In your income statement, there are expenses which are due but not paid. If you will follow cash accounting method, there will not account receivables and account payable in your balance sheet. If you will follow accrual accounting method, you need to show account receivables outstanding expenses, outstanding revenue, advance income and advance expenses and account payable in balance sheet” (Kumar, 2023). Please reference visuals below to further reinforce your understanding. (Kumar, 2023).

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