The major groups of accounts in bookkeeping are expenses, revenue or income, equity, liabilities, and asset accounts. The debit balance in asset categories is healthy for a business. For cash accounts, for instance, a credit balance suggests that a company has written more checks that exceed the actual money in the bank. The credit balances, on the other hands, are generally found in sales, gains, equity, and revenues accounts. A debit balance on income categories of income accounts is unfavorable for the company since it indicates a negative value in the books of accounts. An imbalance in debt balances suggests that “the company has exhausted its income-generating assets” (Ingram, 412). For the credit balance accounts, an imbalance implies that the company is recording loss from its operations that generate income.

The four primary financial statements communicate the operating results, the cash flows, and the financial affairs of a company. Accordingly, a balance sheet is a snapshot of a company’s financial matters. It shows the financial position of an organization at a particular time(Ingram, 412). The income statement, on the other hand, conveys an organization’s financial performance over a given fiscal period. In this case, it communicates expenses incurred, income generated, tax payments, and other miscellaneous sources of revenues of a given period. The cash flow statement conveys the movement of cash, and money equivalents underlying changes on the balance sheet and the income statement. The statement of shareholders’ equity, on the other hand, conveys information on the changes of ownership interests. The order of preparing financial statements is as follows: income statement, retained earnings, balance sheet, cash flows statement, and, finally, the income statement (Yankovichet al., 272). The reason for this logical order is because financial statements are interdependent, and, thus, use data from one another.

Works Cited

Ingram, Robert W. “A note on teaching debits and credits in elementary accounting.” Issues in

            Accounting Education 13.2 (1998): 411.

Yankovich, Steve, et al. “System for preparing financial disclosures by unifying financial close

And financial control steps.” U.S. Patent Application No. 11/278,519.

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