Pages: 3-15, 19-25, 160-163,
254-256, 598-599
CHAPTER 1: INCOME STATEMENT
An Income Statement or Profit and Loss (P&L), is a summary of a business revenues and expenses
over a specific period of time.
Total Revenues – Total Expenses = Net Income (also called net profit and net earnings) or Net loss
• Net Income: more revenues / credit > (- debit)
• Net Loss: more expenses / debit > (-credit)
Revenues / Sales:
(- Cost of Goods Sold)
Gross Profit
(- operating expenses)
Operating Income / Operating Loss
+ other revenues / - other expenses
NET INCOME OR NET PROFIT
Cost of Goods Sold = Cost of merchandise Sold
Cost of Goods Sold = (Beginning Inventory + Purchases) – Ending Inventory
1. Revenues / Sales - COGS = Gross Profit
2. Gross Profit – (total operating expenses) = Operating Income / Operating Loss
3. Operating Income / Operating Loss (+ other revenues) or (- other expenses) = NET INCOME
In an income statement the revenues or sales can be presented as: Fees Earned, sales, fares earned, commissions
revenue, rent revenue, advertising, subscription, Ticketing service, Sales, Sales commissions…
In an income statement the expenses can be presented as:
-single step: wages expenses, supplies expenses, rent expenses, utilities expenses, miscellaneous expenses….
-multiple step: cost of goods sold, operating expenses (sales, marketing, HR, administration, IT…)
Selling expenses: sales salaries ex, advertising ex, depreciation ex – store equipment, miscellaneous ex…
Administrative expenses: office salaries ex, rent ex, depreciation ex - office equipment, insurance ex, office
supplies ex, miscellaneous administration ex…
:
1. Which of the following represents the proper order of financial statement preparations?
Statement of Cash Flows, Balance Sheet, Income Statement, Statement of Retained Earnings
Statement of Retained Earnings , Income Statement, Statement of Cash Flows, Balance Sheet
Balance Sheet, Statement of Cash Flows, Statement of Retained Earnings , Income Statement
Income Statement, Statement of Retained Earnings, Balance Sheet, Statement of Cash Flows,
Message for respondents who select this answer
2. Gross Profit is calculated by the following
Sales - Operating Expenses
Net Income - Taxes
Sales - Cost fo Goods Sold
Operating Income - Cost of Goods Sold
3. Multiple-step income statements show …?
gross profit but not income from operations
neither gross profit nor income from operations
both gross profit and income from operations
income from operations but not gross profit
4. The form of income statement that derives its name from the fact that the total of all
expenses is deducted from the total of all revenues is called a ...
multiple-step statement
revenue statement
report-form statement
single-step statement
6.Arrange the following in the correct sequence to construct a Profit & Loss Account
Sales/Revenues,
Cost of Goods Sold,
Gross Profit,
Operating Costs,
Operating Profit,
Other Revenues and Expenses,
Earnings Before Tax,
Taxes ,
Net Profit/Net Income