The statements are a relay — IS → RE → BS
Year-end totals for Maya's studio: revenues $48,000, expenses $31,000, beginning owner's capital $10,000, owner draws $8,000, assets $27,000, liabilities $8,000. Build the three statements and prove they connect.
Remember this
- formula
The relay: Net income (IS) → Statement of Owner's Equity → Ending capital → Balance Sheet's equity. Prepare them in that order; each needs the previous one's answer.
- mnemonic
IS = a video of the period. BS = a photo of the last day. Equity's statement is the editing room where the two meet.
- watchout
Draws (and dividends) are NOT expenses and never appear on the income statement — they're distributions of equity, living only on the equity statement.