Week 14 — Financial Reporting Basics

Overview

Week Overview

Week 14 introduces the three core financial statements: the income statement, the balance sheet, and the statement of cash flows. Students learn how bookkeeping data flows into each report, how adjusting entries from prior weeks affect financial statements, and how to generate basic reports from accounting software for accountant or manager review.

Objectives

Weekly Learning Objectives

By the end of this week, students will be able to:

Identify the purpose and structure of the income statement, balance sheet, and cash flow statement.
Generate these reports from accounting software for a selected reporting period.
Explain how transactions and adjusting entries affect each financial statement.
Describe the relationship between the income statement and retained earnings on the balance sheet.
Compare cash-basis and accrual-basis reporting in software.
Spot obvious inconsistencies or errors in basic financial reports.
Prepare supporting schedules that tie to key financial statement line items.

Concept 1

Purpose of Financial Reporting

Financial reporting provides stakeholders with information about:

Profitability over a period of time.
The financial position (assets, liabilities, and equity) at a point in time.
How cash is generated and used in operating, investing, and financing activities.

Key idea: Accurate bookkeeping and month-end close (from Week 13) are the foundation for reliable financial reports.

Concept 2

Income Statement (Profit & Loss)

The income statement summarizes financial performance for a period (e.g., “For the month ended June 30”).

Typical structure:

Revenue
Cost of Goods Sold (COGS)
Gross Profit
Operating Expenses (e.g., salaries, rent, utilities)
Operating Income
Other Income and Expenses
Net Income (Profit or Loss)

Students link daily transactions (sales, COGS, expenses, adjusting entries) to income statement categories and discuss common red flags (negative sales, missing COGS, abnormal expense swings).

Concept 3

Balance Sheet (Statement of Financial Position)

The balance sheet shows the organization’s financial position at a point in time (e.g., “As of June 30”) and is built around the accounting equation:

Assets = Liabilities + Equity

Category	Examples
Assets	Cash, Accounts Receivable, Inventory, Prepaids, Fixed Assets
Liabilities	Accounts Payable, Accrued Liabilities, Payroll Liabilities, Loans
Equity	Owner’s Capital, Retained Earnings

Students see how net income from the income statement flows into retained earnings on the balance sheet after closing entries.

Concept 4

Statement of Cash Flows — Overview

The statement of cash flows explains why profit is not the same as cash and groups cash movements into three sections:

Operating Activities: cash from sales, payments to vendors, payroll, operating expenses.
Investing Activities: buying or selling fixed assets or investments.
Financing Activities: loans, repayments, owner contributions, dividends/distributions.

Students classify example transactions into operating, investing, or financing and discuss how accurate coding and reconciliations support a reliable cash flow statement.

Concept 5

How Bookkeeping Data Feeds Financial Statements

Students walk through how everyday transactions flow into financial reports:

Customer invoices → Accounts Receivable and Revenue (Income Statement).
Vendor bills → Accounts Payable and Expenses (Income Statement).
Cash receipts and payments → Cash (Balance Sheet) and various income/expense accounts.
Prepaids, accruals, and depreciation → Adjusting entries that refine expenses and asset values.
Inventory movements → Inventory (Balance Sheet) and Cost of Goods Sold (Income Statement).

The trial balance (from Week 13) acts as the primary source for generating financial statements in software.

Concept 6

Cash-Basis vs. Accrual-Basis Reporting in Software

Students explore how switching between cash and accrual basis in software affects reports:

Cash-basis P&L includes only paid income and expenses.
Accrual-basis P&L includes all earned revenue and incurred expenses, including AP/AR.
Accrual-basis balance sheet shows AP, AR, and other accruals and prepaids.

Students learn that external reporting and management analysis usually rely on accrual-basis reports for a more accurate picture of performance.

Concept 7

Running Reports in Accounting Software

Students practice generating:

Profit & Loss (Income Statement).
Balance Sheet.
Statement of Cash Flows (if available in the software).

Key tasks:

Selecting the correct reporting period.
Choosing cash vs. accrual basis.
Drilling down on unusual amounts to see underlying transactions.
Exporting reports to PDF or Excel for review.

Students review reports for obvious errors before submitting them to the accountant.

Activities

In-Class Activities

1. Income Statement Walkthrough

Students review a sample income statement, identify gross profit, operating expenses, and net income, and highlight any unusual or negative balances.

2. Balance Sheet Puzzle

Working with partial balance sheet data, students fill in missing amounts to satisfy the accounting equation and discuss what each line item represents.

3. Cash Flow Classification Exercise

Students classify sample transactions (e.g., loan received, equipment purchase, rent payment) as operating, investing, or financing cash flows.

4. Software Report Lab

Using sample company data in accounting software, students generate a P&L and balance sheet for a specified month and confirm that key totals match the trial balance and prior assignments.

Homework

Homework Assignments

Assignment 1: Income statement analysis — interpret a sample P&L and identify one misclassified expense.
Assignment 2: Balance sheet matching — use trial balance data to assemble a simplified balance sheet.
Assignment 3: Cash flow classification worksheet — categorize transactions into operating, investing, or financing activities.
Assignment 4: Software reports — generate P&L and balance sheet in the software sandbox and submit exported reports.

Discussion

Discussion Board Prompt

Why is it important for bookkeepers to understand financial statements even if accountants prepare the final reports? How does understanding reporting improve the quality of daily bookkeeping?

Quiz

Quiz Topics for Week 14

Structure and purpose of the income statement.
Structure and purpose of the balance sheet.
Basic purpose and sections of the statement of cash flows.
Accounting equation and how it relates to the balance sheet.
Cash-basis vs. accrual-basis financial reporting.
Effects of common transactions on financial statements.
Basic error spotting in sample financial reports.

Summary

Week 14 Summary

Week 14 connects detailed bookkeeping work to high-level financial statements. Students learn how the income statement, balance sheet, and cash flow statement summarize the results of daily transactions and month-end adjustments, and how bookkeepers can generate and review basic reports for accountant oversight.

These skills prepare students to support accountants, controllers, and business owners by providing clean, well-organized financial data and preliminary reports.