BBI2O: Accounting
Income Statements
Financial statement that shows a business’ __________ (or _____) over a stated period of time –
week, month, quarter, year
Revenue – money, or the promise of money, received from the sales of goods or services
Expenses - expenditures that help a business generate revenue.
Income Statements can be prepared to track daily, monthly or quarterly profit
Businesses are required by law to prepare an Income Statement at the end of every fiscal
year
Steps to Prepare an Income Statement
1. Fill in the _______________ _______________
Who? (Name of individual, business or organization)
What? (Name of the financial statement)
When? (Date on which the financial position is made)
2. Organize the ______________ Section
The money, or the promise of money, received from the sale of goods or services is
called REVENUE
All sources of revenue should be listed
3. Organize the ______________ Section
OPERATING EXPENSES are the costs of operating the business; used to help
generate revenue
Ex: salaries, advertising, maintenance, and utilities
MATCHING PRINCIPLE: All the costs of doing business in a particular time period
are matched with the revenue generated during the same period.
4. Calculate ____ ____________ OR ______ ______________
Use the information from steps 2 and 3 (and the equation for calculating profit) to
determine a NET INCOME or NET LOSS
Total Revenue – Total Expenses = Net Income
Net income occurs when revenues > expenses
Net loss occurs when revenues < expenses
Retail Businesses
Cost of Goods Sold (COGS)
value of the inventory sold during the given period – Used for a retail business
Revenue – Cost of Goods Sold = Gross Profit
Gross Profit – Expenses = Net Income
Gross Profit: $ left over before deducting expense, if no expenses GROSS PROFIT = NET
INCOME
Owner’s Equity Account
Net profit is calculated first then transferred to the balance sheet as part of
owner’s equity
BBI2O: Accounting
Creditors and owners have claims on the assets of the business
Example
Cost of Goods Sold for Jackson’s Cleaning and Shoe Cost of Goods Sold Calculation
Cleaning and Shoe Store Fiscal year runs Jan 1 – Dec Beginning Inventory $10 000
31
Inventory on hand at Jan 1st: $10 000 +Purchases 8 000
Purchases throughout the year total: $8 000 = Cost of Goods Available for 18 000
Inventory on hand at Dec 31st: $7 000 Sale
-Ending Inventory 7 000
=Cost of Goods Sold $11
000
SERVICE Income Statement – No Inventory
Statement Headings
Who
Jackson’s Shoe Cleaning Company What
Income Statement When
Year Ending December 31, 2014
List all
Revenue Revenue
Sales $150,000
$ sign at the start
of each column
Total Revenue $ 150,000 $ sign at the start
of each column
Expenses
Rent Expense $ 10,000 List Expenses
Salaries Expense 10,000
Supplies Expense 5,000
Total Expenses (25,000)
$ sign on the end
total, double
Net Income $ 125,000 underline
BBI2O: Accounting
RETAIL Income Statement Example – Inventory
Statement Headings
Who
Jackson’s Shoe Cleaning and Shoe Store
What
Income Statement
When
Year Ending December 31, 2014
List all
Revenue Revenue
Sales Revenue $ 150,000
Cost of Goods Sold $ sign at the start
Beginning Inventory, January 1, 2014 $ 10,000 of each column
Purchases 8,000
Insert Cost Cost of Goods Available for Sale 18,000
of Goods Ending Inventory, December 31, 2014 (7,000)
Sold (Retail Cost of Goods Sold (11,000)
Business) Gross Profit $ 139,000
Expenses
Rent Expense $ 10,000 List Expenses
Salaries Expense 10,000
Supplies Expense 5,000
Total Expenses (25,000)
$ sign on
the end
Net Income $ 114,000
total,
double
Income Statement Practice
BBI2O: Accounting
Question 1
Prepare an income statement for the month ended Dec 31 2014, using the following
information. The business is Prankerd Inc and it is a retail business. Sales Revenue is
$90 000, Inventory Dec 1, 2014 is $30 000, Purchases of inventory was $10 000,
Inventory Dec 31, 2014 is $21 000, Salary Expense $6 000, Rent Expense $2 200,
Utilities Expense $1 150, Advertising Expense $875, Supplies Expense $175.
Revenues
Cost of Goods Sold
Operating Expenses
BBI2O: Accounting
Question 2
John is trying to create an income statement for his dad. His dad has given him a sheet
with a lot of financial items on them. There are some assets, liabilities, revenues and
expenses on this sheet. Pick out the items that are necessary to create an income
statement (you don’t need them all!) and create one. The business name is Smith Inc
and the fiscal year ends on July 3, 2012.
Sales Revenue $100 000 Salary Expense $100 000
Cash $10 000 Mortgage Payable $140 000
Accounts Receivable $30 000 Rent Expense $50 000
Inventory July 4, 2011 $60 000 Bank Loan $8 000
Purchases $80 000 Advertising Expense $5 000
Inventory July 3, 2012 $10 000 Supplies Expense $10 000
Revenues
Cost of Goods Sold
Operating Expenses
