GAAP’S
1.Time Period Principle – The defining and consistent
use of the same period of time for the accounting
period.
2.Each company sets and defines an accounting
period and consistently uses this time period when
preparing financial statements
1.Matching Principle – The costs recorded in the
expense accounts should be matched with the
revenue they help to generate during the same
accounting period
1.Accrual Basis of Accounting – this style of
accounting records revenue when it is earned,
whether for cash or credit, and expenses when they
are incurred, whether for cash or on credit
Steps in Preparing an Income
Statement
1. Prepare the statement heading – 3 line heading like
the balance sheet
2. Prepare the revenue section – the largest revenue
item is usually listed first, the revenue is totaled and
the total is placed in the right hand column
3. Prepare the expense section – they are listed in the
order in which they appear in the ledger
4. Determine the net income or net loss – calculating
the difference between the revenue and the
expenses
Facts to Remember
1.Dollar signs should be placed beside the first figure
in each column, and should be placed beside the net
income or the net loss figure at the bottom of the
statement
2.A net loss is shown by placing the number in
brackets ex ($1000)