Revenues….
They ‘aint assets
Here’s the definition
goods or services of customers. is the sale to Revenue proceeds
from the
Revenue is the proceeds from the sale of goods or services to
customers.
Recognition of Revenue
• Whenever a business takes in money or is promised money
for products made or services rendered, they generate
Revenue.
Some examples:
- A gym obtains revenue from membership fees
- Real estate firms earn revenue from commissions they make
from property sales
- Lawyers, Accountants, Dentists, earn fees from clients which is
Revenue
- Retail stores earn Revenue from the sales of their products
Expenses…
They ‘aint Liabilities
Here’s the Definition
Expenses are the costs incurred to generate revenue.
But how do you decide what’s an expense and what’s a liability?
Liabilities are financial obligations or upcoming duties that a
company must pay. Expenses are costs incurred by the company
as they attempt to make revenue.
So Expenses are when a business spends money to make
money.
The Income Statement
Equation
• Well there really is no “Equation” but the goal of the Income
statement is to show Net Profit or Net Loss. And that is
achieved by the calculating the following:
REVENUE – EXPENSES = Profit or Loss
Recording Revenue and
Expenses
• In order to get the most accurate account of Revenue and
expenses we need to employ the Accrual Basis of Accounting
which states:
Revenue is only recorded when earned and expenses are
recorded when incurred.
• This matches up with the Revenue Recognition Principle which
states:
Revenue is recorded even if cash has not yet been physically
received.
But, sir?!?!
Why you no teach us exactly HOW to make an income
statement???
Income Statements in 4 Steps
• Step 1: Title (Who, What, When) As in our other major
financial statements, we need a title telling who the company
is, what type of statement and what the accounting period is.
PysioCentral
Income Statement
As at July 31/2014
Step 2
• Prepare the revenue section
Remember, revenue is received from products sold or services
rendered. This section needs a few things:
Revenue
Sub heading
Physiotherapy session fees
Equipment rental
Total Revenue
Dollar Sign
Addition Line
$11 500
650
12 150
Revenue is listed in order from biggest to smallest.
Step 3
• Prepare the Expenses Section
Expenses
Salaries
Advertising
Maintenance
Total Expenses
Sub Heading
$3 850
2450
720
7 020
Line to show calculation of Net income
Step 4
Put it all together! An calculate Net Income or Net Loss
Remember, The final total has to be double underlined, and a
dollar sign must be added.
If the number ends up being negative (Net Loss) then it should
be put inside a bracket.
And now a random Rage Comic