The Income Statement
BAF3M
Revenue
 Amounts of money earned from the sale of goods or
services during the routine operation of the business.
 Revenue can be recorded from a promise of money
(Accounts Receivable)
 For example: Fees Earned, Service Revenue, Sales
Revenue
Expenses
 The costs of items or services used up in the routine
operation of the business.
 Can be recorded even if the business hasn’t paid for
them yet (Accounts Payable)
 For example: Salaries, wages, advertising expenses,
delivery expenses
Net Income/Net Loss
 Net Income is the difference between revenue and
expenses, when revenue is greater than expenses
 Net Loss is the difference between revenue and expenses,
when expenses are greater than revenues
 Net Income is also referred to as PROFIT
 For example:
 $500 (Revenue) - $400 (Expenses) = $100 (Net Income)
 $500 (Revenue) - $700 (Expenses) = ($200) (Net Loss)
Income Statement
 Presents the revenue, expenses, and net
income/loss for a specific period of time (an
accounting period / fiscal period)
Beyonce’s DayCare
Income Statement
For the Year Ended December 31, 2012
Revenue
Babysitting Fees Earned
Total Revenue
Expenses
Advertising
Rent
Salaries
Supplies
Utilities
Total Expenses
Net Income
$250,000
$250,000
1,200
12,000
60,000
350
15,000
88,550
$161,450
Step 1 – Statement Heading
 A Three Line Heading is Used
 WHO? – The name of the individual, business or other
organization
 WHAT? – The name of the financial statement (in this
case, the income statement)
 WHEN? – The period of time being measured by the
income statement
 For the (month, year, quarter) ended (date)
 Example: For the month ended March 31, 2013
Step 2 – Prepare Revenue
Section
 The largest Revenue item (stream) is listed first
 Revenue is totalled in the left column and placed in the
right column.
Step 3 – Prepare Expenses
 Expenses are listed in Alphabetical order
 Expenses are totalled in the left column and placed in
the right column.
Step 4 - Find Net Income /
Loss
 Revenues – Expenses = Net Income (Net Loss)
 Double Underline and add $
Beyonce’s DayCare
Income Statement
For the Year Ended December 31, 2012
Revenue
Babysitting Fees Earned
Total Revenue
Expenses
Advertising
Rent
Salaries
Supplies
Utilities
Total Expenses
Net Income
$250,000
$250,000
1,200
12,000
60,000
350
15,000
88,550
$161,450
GAAP: Time Period Principle
 Requires the definition and use of the same period of
time for the accounting period / fiscal period.
 Why?
 It is important for consistency purposes that financial
information can be measured and compared.
GAAP: Matching Principle
 States that expenses should be recorded and matched
with the revenue they help to generate during the same
accounting period.
 This results in an accurate net income, because it
reflects the business’ activities over the period.
 Expenses are recorded when they are incurred, not
when they are paid.
 For example:
 If an expense was incurred, but not yet paid, an expense
is still recorded with an Accounts Payable
 Debit: Expense, Credit: Accounts Payable
GAAP: Revenue Recognition
Principle
 Revenues are recorded when they are EARNED, not
when cash is paid.
 For example:
 If a service was performed and no cash was paid, the
business will record an accounts receivable and a
revenue
 Debit: Accounts Receivable, Credit: Service Revenue
(Fees
Earned)
Activity
 Read pages 67-73
 pg. 73, Ex 1,2, 4-6