→ Step 3 Next, let's prepare the income statement. The income statement shows the company's revenues and expenses, and the difference is the net income. Here's the income statement for Sage Inc. for Year 1: Sales Revenue: $310,000 Cost of Goods Sold: $156,000 Gross Profit: $154,000 ($310,000 - $156,000) Operating Expenses: Salaries Expense: $52,000 Other Operating Expenses: $68,000 Total Operating Expenses: $120,000 ($52,000+ $68,000) Net Income: $34,000 ($154,000 - $120,000) Step 4 Then, let's prepare the statement of changes in stockholders' equity. The statement of changes in stockholders' equity shows the changes in the company's equity during the year. Here's the statement of changes in stockholders' equity for Sage Inc. for Year 1: Beginning Common Stock: $0 Issued Common Stock: $90,000 Net Income: $34,000 Ending Common Stock: $124,000 ($0 + $90,000+ $34,000) Step 5 Next, let's prepare the balance sheet. The balance sheet shows the company's assets, liabilities, and equity at the end of the year. Here's the balance sheet for Sage Inc. for Year 1:

Definition Definition Remaining net income of the company after the required dividends are paid to shareholders. This surplus money is usually invested back into the business to expand its business operations or launch a new product.