The Income Statement
BAF3M
RevenueAmounts of money earned from the sale of
goods or services during the routine operation of the business.
Revenue can be recorded from a promise of money (Accounts Receivable)
For example: Fees Earned, Service Revenue, Sales Revenue
ExpensesThe costs of items or services used up in the
routine operation of the business.
Can be recorded even if the business hasn’t paid for them yet (Accounts Payable)
For example: Salaries, wages, advertising expenses, delivery expenses
Net Income/Net LossNet Income is the difference between revenue and
expenses, when revenue is greater than expenses
Net Loss is the difference between revenue and expenses, when expenses are greater than revenues
Net Income is also referred to as PROFIT
For example:$500 (Revenue) - $400 (Expenses) = $100 (Net Income)$500 (Revenue) - $700 (Expenses) = ($200) (Net Loss)
Income StatementPresents the revenue, expenses, and net
income/loss for a specific period of time (an accounting period / fiscal period)
Beyonce’s DayCareIncome Statement
For the Year Ended December 31, 2012
RevenueBabysitting Fees Earned $250,000Total Revenue $250,000
ExpensesAdvertising 1,200Rent 12,000Salaries 60,000Supplies 350Utilities 15,000Total Expenses 88,550
Net Income $161,450
Step 1 – Statement Heading
A Three Line Heading is Used
WHO? – The name of the individual, business or other organization
WHAT? – The name of the financial statement (in this case, the income statement)
WHEN? – The period of time being measured by the income statementFor the (month, year, quarter) ended (date)Example: For the month ended March 31, 2013
Step 2 – Prepare Revenue Section
The largest Revenue item (stream) is listed first
Revenue is totalled in the left column and placed in the right column.
Step 3 – Prepare ExpensesExpenses are listed in Alphabetical order
Expenses are totalled in the left column and placed in the right column.
Step 4 - Find Net Income / Loss
Revenues – Expenses = Net Income (Net Loss)
Double Underline and add $
Beyonce’s DayCareIncome Statement
For the Year Ended December 31, 2012
RevenueBabysitting Fees Earned $250,000Total Revenue $250,000
ExpensesAdvertising 1,200Rent 12,000Salaries 60,000Supplies 350Utilities 15,000Total Expenses 88,550
Net Income $161,450
GAAP: Time Period Principle
Requires the definition and use of the same period of time for the accounting period / fiscal period.
Why? It is important for consistency purposes that
financial information can be measured and compared.
GAAP: Matching PrincipleStates that expenses should be recorded and
matched with the revenue they help to generate during the same accounting period.
This results in an accurate net income, because it reflects the business’ activities over the period.
Expenses are recorded when they are incurred, not when they are paid.
For example: If an expense was incurred, but not yet paid, an
expense is still recorded with an Accounts PayableDebit: Expense, Credit: Accounts Payable
GAAP: Revenue Recognition Principle
Revenues are recorded when they are EARNED, not when cash is paid.
For example: If a service was performed and no cash was paid,
the business will record an accounts receivable and a revenue
Debit: Accounts Receivable, Credit: Service Revenue
(Fees Earned)
ActivityRead pages 67-73
pg. 73, Ex 1,2, 4-6