I do not understand the role of the income statement on an accrual basis. If you are given a balance sheet from November 2005 (which is the company start up), and one from March 2006 (when the company is no longer open), how do you calculate the income statement. Do you use the information given from the November 2005 as the beginning inventory, cash, etc., and the info from the March 2006 balance sheet as the ending cash, inventory, etc? I think I am confused because the balance statements are only five months in time, yet are two different fiscal years. Does it matter that the info comes from two different years?
Please find my response below. I have done my best to answer your question to the best of my ability.
First of all, let me clarify that it does not matter if the time span occupies more than 1 fiscal year. You are given a balance sheet from November 2005 (note that this is not December 2005 or any other ...
The solution considers the role of the income statement on an accrual basis.