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THE ACCOUNTING CYCLE: REPORTING FINANCIAL RESULTS


Circuit City is a national retailer of televisions, video equipment, stereo systems, personal computers, cellular phones, and an array of other consumer electronic devices. The company reported net income of nearly $62 million in a recent income statement. Certain disclosures provide important information about this income figure. For example, the notes to the financial statements disclose that Circuit City had "spun off" its bankcard financing operation by selling it to FleetBoston Financial . Circuit City's income statement reports a $90 million after-tax loss related to this transaction.

The numerous disclosures provided by Circuit City are absolutely essential for the proper interpretation of the company's financial statements. The notes to the company's financial statements also include information about store closings, outstanding receivables, executive compensation, sources of credit, and many other important issues.

AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO:

Prepare an income statement, a statement of retained earnings, and a balance sheet.

Explain how the income statement and the statement of retained earnings relate to the balance sheet.

Explain the concept of adequate disclosure.

Explain the purposes of closing entries; prepare these entries.

Prepare an after-closing trial balance.

Use financial statement information to evaluate profitability and liquidity.

Explain how interim financial statements are prepared in a business that closes its accounts only at year-end.

Prepare a worksheet and explain its uses.
•Supplemental Topic , "The Worksheet."





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