LESSON 15-1 Preparing an Income Statement. New Vocabulary Net sales: Total sales less sales...

LESSON 15-1LESSON 15-1

Preparing an Income Statement

New Vocabulary

Net sales: Total sales less sales discount and sales returns and allowances

Cost of merchandise sold: The original price of all merchandise sold during a fiscal period

Gross profit on sales: The revenue remaining after cost of merchandise sold has been deducted

INCOME STATEMENT INFORMATION ON A WORK SHEET

page 448

REVENUE SECTION OF AN INCOME STATEMENT FOR A MERCHANDISING BUSINESS

11

22

33 44

55

66

page 449

7788 99

COST OF MERCHANDISE SOLD SECTION OF AN INCOME STATEMENT FOR A MERCHANDISING BUSINESS

11

2233

page 450

446655

COMPLETING AN INCOME STATEMENT FOR A MERCHANDISING BUSINESS

11

22

44

55

page 452

77

3366

Audit Your Understanding

What is the major difference between the income statement for merchandising business and a service business?

The cost of merchandise sold sectionHow was the cost of merchandise sold

calculated? Beginning merchandise inventory, plus net

purchases, equals total cost of merchandise available for sale, less ending merchandise inventory, equals cost of merchandise sold


How can the amount of net income calculated on the income statement be verified?

Compare it with the amount on the worksheet

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15-2 Analyzing an Income Statement

New Vocabulary Financial ratio: A comparison

between two items of financial information

Earnings per share: The amount of net income after federal income tax belonging to a single share of stock

Price-earnings ratio: The relationship between the market value per share and earnings per share of a stock

ANALYZING AN INCOME STATEMENT SHOWING A NET LOSS page 457

Price-EarningsRatio

=Earnings

perShare

÷Market Price

per Share

Earningsper Share

=Number of

SharesOutstanding

÷Net Income

after FederalIncome Tax

FINANCIAL RATIOSpage 459

Earnings per Share

Price-Earnings Ratio

$32.13=2,500÷$80,313.95

10.7=$32.13÷$345.00


For a merchandising business, every sales dollar includes what four components?

(1) cost of merchandise sold, (2) gross profit on sales, (3) total expenses, and (4) net income

How does a company determine acceptable component percentages?

By making comparisons with prior fiscal periods as well as with industry standards

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15-3 Preparing a Statement of Stockholder’s Equity New Vocabulary

Statement of stockholders equity: A financial statement that shows changes in a corporation’s ownership for fiscal period

Par Value: A value assigned to a share of stock and printed on the stock certificate

CAPITAL STOCK SECTION OF THE STATEMENT OF STOCKHOLDERS’ EQUITY page 461

3.Total stock issued at the end of the year

1.Stock at the beginning of the year

2.Stock issued during the year

Multiply parvalue by number

Shares$50 x 2,000

RETAINED EARNINGS SECTION OF THE STATEMENT OF STOCKHOLDERS’ EQUITY page 462

The two changes:Net Income and

Dividends


What financial information does a statement of stockholders equity report?

The changes in a corporation’s ownership for fiscal period

What are the two major sections of a statement of stockholders’ equity?

Capital stock and retained earnings


Where is the information found to prepare the capital stock section of the statement of stockholders’ equity

In the capital stock general ledger accountWhere is the beginning balance of retained

earnings found? In the Balance Sheet credit column of the

worksheet


How does a corporation distribute a portion of income to stockholders?

As a dividend

Where is the amount of dividends found? In the Balance Sheet debit column of a

worksheet

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15-4 BALANCE SHEET INFORMATION ON A WORK SHEET page 464

CURRENT ASSETS SECTION OF A BALANCE SHEET

page 465

Book value of accounts receivable

1.Heading 2. Assets section

Book Valueof Accts.Receivable

PLANT ASSETS SECTION OF A BALANCE SHEET

page 466

Book Value

New Vocabulary

Current liabilities: Liabilities due within a short time, usually within a year Example: Accounts Payable

Long-term liabilities: Liabilities for more than a year Example: Mortgage or a Car Loan

LIABILITIES SECTION OF A BALANCE SHEET

page 467

Account title and amount of each current liability

Total liabilities

22

STOCKHOLDERS’ EQUITY SECTION OF A BALANCE SHEET

page 468

COMPLETED BALANCE SHEET page 469

(continued on next slide)

COMPLETED BALANCE SHEET page 469

(continued from previous slide)

New Vocabulary

Supporting schedule: A report prepared to give details about an item on a financial statement

Examples: Schedule of Accounts Receivable &

Schedule of Accounts Payable


What are the two ways assets are classified?

Current and plant assetsWhat three items are listed on the

balance sheet for accounts having a related contra asset account?

(1) the balance of the asset account, (2) the balance of the asset’s contra account, and (3) book value

Audit Your UnderstandingWhat is an example of a long-term liability? Mortgage payable

What are the two supporting schedules that might accompany a balance sheet?

Schedule of accounts payable and schedule of accounts receivable

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Famous Last Words

Famous Last Words

Famous last words…

I’ll get a world record for this.


It’s fire proof.


He’s probably just hibernating.


What does this button do?


Are you sure the power is

off?


Yeah, I made the deciding vote on the jury, so what

of it?


The odds of that happening are a million to one.


Pull the pin and count to what?


Which wire was I supposed to cut?


I wonder where the mother bear

is.


I’ve seen this done on TV.


These are the good kind of mushrooms.


I’ll hold it and you light the fuse.


Let it down slowly.


It’s strong enough for both

of us.


This doesn’t taste right.


Nice doggie.


I can do that with my eyes closed.


I’ve done this

before.


Well, we’ve made it this far.


That’s odd.


You wouldn’t hit a guy with glasses on, would you?


Don’t be so superstitious.


Now, watch this.

The End

LESSON 15-1 Preparing an Income Statement. New Vocabulary Net sales: Total sales less sales...

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