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
EXP
REV
REVNUES > EXPENSES =
NET INCOME
EXPENSES > REVENUE =
NET LOSS
REV
EXP
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
Mustang Market
Income Statement
For the month ended June 30, 2011
• 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
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 Statement
Similar 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