The four components of a corporate financial statement are the balance sheet, the income statement, the cash flow statement and the statement of shareholders' equity. The statement of shareholders' equity reports events that affect the amount of shareholder equity, such as the sale of stock and the issuance of dividends.
1. Create seven vertical columns and place the titles "Preferred Stock," "Common Stock," "Treasury Stock," "Unrealized Gains and Losses," "Retained Earnings," "Dividends" and "Total" at the top of each column.
2. Identify every event affecting the amount of equity in your company during the accounting year in question. For example, your company may have paid dividends, issued stock, made capital gains through the appreciation of its assets, or earned income.
3. Create horizontal rows. The first row should be entitled "Balance as of 1 Jan 20XX", if your company's accounting year is the calendar year. Further rows should list the events you identified in Step 2, such as net income, dividends paid, and common stock issued. The last row should be titled "Balance as of 31 Dec. 20XX."
4. Fill in the beginning balances for every column. For example, if the company had $100,00 in issued stock at the beginning of the year, insert the entry "$100,000" under "Common Stock" across from the row entitled "Balance as of 1 Jan 20XX." Under "Total," add all the amounts in the vertical columns. This figure represents the company's total equity at the beginning of the tax year.
5. Insert dollar values across from every event represented by a horizontal row, under the corresponding vertical column. For example, if the company issued $25,000 in common stock during the tax year, insert "$25,000" across from "Common Stock Issued" and under "Common Stock."
6. Complete the ending balances for each column by adding the dollar value of the events represented by horizontal rows to the beginning balances in the top row. For example, $125,000 should appear across from "Balance as of 31 Dec. 20XX." and under "Common Stock," because at the end of the year the company had issued a total of $125,000 in shares. The bottom entry in the "Total" column represents your company's equity at the end of the tax year. Comparing the beginning and ending balances under the "Total" column will tell you how the company's equity changed during the tax year.
- The four financial statements are interrelated and must be consistent with each other. Failure to reconcile them can in some cases constitute a criminal offense.
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