The Income Statement
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Principles of Accounting, 4th edition
PowerPoint 17
Chapter 3, Unit 4
The Income Statement Format
Who?
What?
When?
Revenue
$
minus
Expenses
equals
Net Income (Net Loss)
2
Principles of Accounting, 4th edition
$
PowerPoint 18
Chapter 3, Unit 4
The Income Statement:
Determining Net Income (Net Loss)
3
Revenue
–
Expenses
=
Net Income (Net Loss)
(a) $150 000
–
$ 70 000
=
$
(b)
30 000
–
29 500
=
(c)
131 000
–
135 000
=
(d)
74 000
–
68 000
=
(e)
58 000
–
60 000
=
•
When REVENUE is greater than expenses there is a NET INCOME.
•
When EXPENSES are greater than revenue there is a NET LOSS.
Principles of Accounting, 4th edition
PowerPoint 19
Chapter 3, Unit 5
Revenue and Expense Accounts
Determine Net Income or Net Loss
Revenue and Expense Accounts
Net Income or Net Loss
Owner’s Capital Account
DEBIT
Decreases the Balance
NET LOSS
4
Principles of Accounting, 4th edition
CREDIT
Increases the Balance
NET INCOME
PowerPoint 20
Chapter 3, Unit 5
Income Statement Accounts
Debits and credits for
income statement
accounts are
determined
by how they affect
owner’s equity.
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Principles of Accounting, 4th edition
PowerPoint 21
Chapter 3, Unit 5
Summary of Debit and Credit Theory
Balance Sheet Accounts
6
Principles of Accounting, 4th edition
PowerPoint 22
Chapter 3, Unit 5
Summary of Debit and Credit Theory
Income Statement Accounts
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Principles of Accounting, 4th edition
PowerPoint 23
Chapter 3, Unit 5
Transaction Analysis:
Asking the Right Questions
1. Which accounts were affected?
2. Were the accounts A, L, OE, R, or E accounts?
3. Did the accounts increase or decrease?
4. Were the accounts debited or credited?
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Principles of Accounting, 4th edition
PowerPoint 24
Chapter 3, Unit 5
The Owner’s Capital and Drawings Accounts:
What Are They? (page 1)
C. PICCOLO, CAPITAL
DEBIT
CREDIT
Decrease
Increase
(c) Losses
(a) Owner’s investment
(b) Profits
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Principles of Accounting, 4th edition
PowerPoint 24
Chapter 3, Unit 5
The Owner’s Capital and Drawings Accounts:
What Are They? (page 2)
C. PICCOLO, DRAWINGS
DEBIT
Increase
CREDIT
Decrease
(a) Withdrawals of assets and
cash
(b) Owner’s salary
The Drawings account is a record of all withdrawals of assets
by the owner.
10 Principles of Accounting, 4th edition
PowerPoint 25
Chapter 3, Unit 5
Calculating the New Capital: Net Income and
Drawings, Drawings Smaller than Net Income (page 1)
Owner’s Equity
D. Quan, Capital May 1
$125 400
Add: Net Income for May
$5 000
Less: D. Quan, Drawings
2 580
Increase in Capital
D. Quan, Capital May 31
11 Principles of Accounting, 4th edition
$
PowerPoint 25
Chapter 3, Unit 5
Calculating the New Capital: Net Income and
Drawings, Drawings Smaller than Net Income (page 2)
Owner’s Equity
D.K. Kirchner, Capital June 1
Add: Net Income for June
Less: D.K. Kirchner, Drawings
$56 500
$6 000
2 600
Increase in Capital
D.K. Kirchner, Capital June 30
•
Net Income INCREASES Capital.
•
Drawings DECREASE Capital.
12 Principles of Accounting, 4th edition
$
PowerPoint 26
Chapter 3, Unit 5
Calculating the New Capital: Net Loss and Drawings
Owner’s Equity
K. Chari, Capital July 1
Less: Net Loss for May
Less: K. Chari, Drawings
$228 900
$1 500
2 400
Decrease in Capital
K. Chari, Capital July 31
13 Principles of Accounting, 4th edition
$
PowerPoint 27
Chapter 3, Unit 5
Drawings Larger than Net Income
Owner’s Equity
C. Hnatyshin, Capital August 1
Add: Net Income for May
Less: C. Hnatyshin, Drawings
$87 200
$
310
1 730
Decrease in Capital
C. Hnatyshin, Capital August 31
Net Loss DECREASES Capital.
14 Principles of Accounting, 4th edition
$
PowerPoint 28
Chapter 3, Unit 5
The General Ledger
15 Principles of Accounting, 4th edition