Prepare Financial Statements
The third activity in the general and reporting system is preparing financial statements (circle 3.0 in Figure 14-2). The statement is prepared first, using data from the revenue and expense account balances in the adjusted trial balance. The balance sheet is prepared next. This activity requires closing that zero out all revenue and expense account and transferring the net income or loss to retained earnings. Most organizations perform both monthly and annual closes. The former zeroes out the current month’s revenue and expense account balances but leaves the year-to-date totals intact. Thus, an income statement generated immediately after a monthly closing would display all zeroes in the current month column, but would store cumulative numbers in the year-to-date column. The third major financial statement produced is the statement produced is the statement of cash flows. It uses data from the income statement and balance sheet to provide details about the organization’s investment and financing activities.