Rview of Financial Statements Essay Example | Topics and Well Written Essays - 250 words

Rview of Financial Statements - Essay Example Accountants keep track of the financial activity of a company by recording journal entries. The eight steps of the accounting cycle are: record transactions in journal, post transactions to ledger, prepare adjusting entries, prepare summary of account balances, prepare income statement and revenue and expense accounts, close revenue and expense accounts to retained earnings, prepare post closing summary of account balances, prepare balance sheet and statement of cash flow. Once the accountants of Lowe’s and Home Depot complete the accounting cycle the financial statements are ready. The income statement is a statement that states the profitability of a company. At the top of the statement the revenues of the company are expressed. The costs of goods sold are subtracted to arrive at the gross profits. Then the operating expenses and taxes are subtracted to obtain the net income of the firm. The revenues and net income of Lowe’s in fiscal year 2009 were $47.22 billion and $1.783 billion (Annual Report: Lowes, 2009). In 2009 Home Depot’s performance was better. Home Depot in 2009 had revenues of $66.18 billion and net income of $2.66 billion (Annual Report: Home Depot, 2009). The balance sheet is a financial statement that reflects the financial position of a company at a specific point in time. The basic elements of the balance sheet are the assets, liabilities, and stockholder’s equity.