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    Q.6Articulation and How Financial Statements Articulate

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    Asjad Jamshed
    The document discusses articulation in financial statements. Articulation means the income statement and balance sheet are mathematically linked so that net income equals the change in owners' equity. Information flows between the income statement, retained earnings statement, and balance sheet in a specific order - the income statement is prepared first and net income flows to retained earnings and then to stockholders' equity on the balance sheet. Financial statements must be prepared in this order for the information to properly articulate between statements.

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    Q.6Articulation and How Financial Statements Articulate

    Uploaded by

    Asjad Jamshed
    10K views1 page
    The document discusses articulation in financial statements. Articulation means the income statement and balance sheet are mathematically linked so that net income equals the change in owners' equity. Information flows between the income statement, retained earnings statement, and balance sheet in a specific order - the income statement is prepared first and net income flows to retained earnings and then to stockholders' equity on the balance sheet. Financial statements must be prepared in this order for the information to properly articulate between statements.

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    WHAT IS ARTICULATION AND HOW FINANCIAL STATEMENTS ARTICULATE?

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    The document discusses articulation in financial statements. Articulation means the income statement and balance sheet are mathematically linked so that net income equals the change in owners' equity. Information flows between the income statement, retained earnings statement, and balance sheet in a specific order - the income statement is prepared first and net income flows to retained earnings and then to stockholders' equity on the balance sheet. Financial statements must be prepared in this order for the information to properly articulate between statements.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    10K views1 page

    Q.6Articulation and How Financial Statements Articulate

    Uploaded by

    Asjad Jamshed
    The document discusses articulation in financial statements. Articulation means the income statement and balance sheet are mathematically linked so that net income equals the change in owners' equity. Information flows between the income statement, retained earnings statement, and balance sheet in a specific order - the income statement is prepared first and net income flows to retained earnings and then to stockholders' equity on the balance sheet. Financial statements must be prepared in this order for the information to properly articulate between statements.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    of 1

    Information from financial statements

    Q6.WHAT IS ARTICULATION AND HOW FINANCIAL STATEMENTS


    ARTICULATE?
    Articulation
    Articulation means that the income statement and balance sheet are mathematically
    defined in such a way that net incomes equal to the change in owners’ equity for a
    period, assuming no capital transactions or prior period adjustments.

    Articulation and Preparing the Financial Statements


    The information flows back and forth between the Income Statement and Balance Sheet.
    This is called articulation. There are some very important articulations to watch when
    preparing financial statements. The financial statements should be prepared in the correct
    order, so the information articulates (flows) correctly.
    The Income Statement should be prepared first. Net Income or Net Loss flows to the
    Statement of Retained Earnings (or Statement of Stockholders’ Equity). The ending
    balance of Retained Earnings flows to the Stockholder’s Equity section of the Balance
    Sheet.

    How information articulates between financial statements


    Income Statement Retained Earnings Stmt Balance Sheet
    Net Income or Loss ==> Retained Earnings ===> Stockholders' Equity
    Because of articulation, financial statements must be prepared in this order.

    Revenue-expense proponents are primarily concerned with stabilizing the fluctuating


    effect of transactions on the income statement and are prepared to introduce deferred
    charges and deferred credits in order to smooth income measurement. Asset-liability
    advocates are mainly concerned with reporting changes in the value of net assets, and
    they are prepared to tolerate a fluctuating income statement that may include unrealized
    holding gains and losses. If the financial statements were severed, both the income-
    expense and asset-liability groups might be satisfied with a revenue-based income
    statement and an asset-liability-based balance sheet.

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