The Income Statement

Up to now......

• Learned a variety of accounts– Assets– Liabilities– Owner’s Equity– Revenue – Expenses

• Learned our first financial statement – Balance Sheet

Net Income or Net Loss

REV

EXPREV

EXP

REVNUES > EXPENSES = NET INCOME

EXPENSES > REVENUE = NET LOSS

Income Statement• Revenue & Expenses are shown on an Income

Statement– A detailed report showing if a business is

profitable during a certain time period– If there is profit – the company’s Equity increases– If there is a loss – the company’s Equity decreases

• Income Statement is more like a video camera– Shows the reader the ongoing story

throughout the time period.– not just the final picture

Income Statement

• The Balance Sheet is a picture at any given time over the life of a business– Accounts go up and down over the years

• The Income statement is only the totals of certain accounts during a specific period– $2500 in advertising expense during September• Start over in October – occur $1000 IN ad expense

Income Statement

• A financial statement that summarizes the items of revenue and expense, and shows the net income or net loss of a business for a given period of time– Fiscal Period – the time for which the financial

statements are prepared– Often annually or quarterly

• Used by owners, managers, investors, bankers, creditors, government (taxes)

GAAP OF THE DAY

The Time Period Concept

• The operating cycle of a firm must be divided into distinct accounting periods – Year, Month, or Quarter

• Once the reporting period is established, you use the GAAP guidelines– For example – The Matching Principle

GAAP OF THE DAY #2

The Consistency Principle

• The accounting period must be the same from period to period– No 4 months and then 6 months and then 2

months

• Accountants must use the same methods from period to period– If anything changes – the changes and reasons for

doing so need to be disclosed in the notes to the financial statements

The Title

• Similar to the Balance Sheet– Who– What – When

• The only difference• The accountant must let the period know for how long

the income statement was prepared– EXAMPLE: For the month ended September 30, 2011 or For

the year ended December 31, 2011

Mustang Market

Income Statement

For the month ended June 30, 2011

The Income Statement

• Revenues– Listed first on the income statement– Listed in order of significance• The largest total goes at the top

• Kelsey’s revenue streams– Alcohol, Catering, Food, Merchandise– What order?

The Income Statement

• Expenses– Nothing special to it– Listed alphabetically

Dissecting the Income StatementSimilar Heading to Balance Sheet• For the Month or Period Ended

Revenues listed first• Result of sale of goods and services

Each Expense Listed in Detail• Added up and Summarized as Total Expenses

Subtract Expenses from Revenues• Revenues > Expenses = Net Income•Revenues < Expenses = Net Loss

The Two Columned Income Statement

• To Properly use the two columns of an income statement– First column – for sub totalling• If there are more than one forms of revenue and/or

expenses

– Second column – totals for revenue, expenses & at the bottom, net income or net loss • Net Income or Net Loss is always double underlines

Income Statement Puzzle

• Get into a group of 4– You will be given pieces of an income statement– Instructions are simple – put them in the correct

order!

PERSONAL INCOME STATEMENT