BKMSH Introduction to Income Statement
- 1. General Accounting Introduction to Income Statement
- 2. What are Financial Statements? 2 • Used by managers, shareholders, investors, lenders and the government for different reasons and purposes • Show the financial status of an entity • Comprised of income statement, balance sheet and cash flow statement • Also known as earnings statement and profit and loss statement
- 3. What are Financial Statements? 3 • Detail the business’ financial performance for a certain month, quarter or year • Rehashes the generated income and deducts the incurred expenditures in the derivation of that income • Illustrate the revenue-generating capacity and financial status of an entity
- 4. Importance of Income Statement 4 • Addresses queries related to the financial performance of a business • Describes the results of business transactions that generate income in exchange for goods or rendered services • Reflects incurred expenditures and indicates the net profit • Required by the IRS
- 5. Preparing an Income Statement 5 • In constructing an income statement, the following should be indicated: - gross profit - operating profit - profit before taxes - net profit
- 6. Preparing an Income Statement 6 • Gross profit is determined by deducting net sales from the cost of goods sold Gross Profit = Net Sales - Cost of Goods Sold Net Operating Profit = Gross Profit - Selling and Administrative Expenses Profit Before Taxes = Net Operating Profit + (Other Income - Other Expenses) Net Profit/Loss = Profit Before Taxes - Income Taxes
- 7. Preparing an Income Statement 7 • Net Sales are overall sales for the accounting period minus the allowances for the trade discounts and returns Net Sales = Gross Sales - (Return and Allowances)
- 8. Preparing an Income Statement 8 • Cost of Goods Sold is the total amount paid for the sold products throughout the accounting period Cost of Goods Sold = Inventory at the Start + Purchased Materials - Ending Inventory
- 9. Preparing an Income Statement 9 • Selling and Administrative Expenses are the two kind of expenses reported on the income statement • Selling expenses are incurred expenditures throughout the marketing process • Administrative expenses are expenditures during the business operation excluding the sales of goods
- 10. Preparing an Income Statement 10 • Other income and expenses are income or expense items that are not directly associated with the business proceedings • Other incomes include earning from interests, dividends and royalties • Other expenses are unforeseen losses such as the loss from the disposition of equipment or machineries
- 11. Preparing an Income Statement 11 • Income taxes are inevitable part of any business transaction and can be taxed by local, state and/or federal government • Net income is the last item on the financial statement and shows the gained base profit by an entity during the specified accounting period
- 12. Issues on Financial Statement 12 • Items such as brand recognition, organizational reputation, and customer loyalty are important and relevant business items but are not evaluated and reported on the income statement. • The income statement cannot specify the owner’s assets and liabilities, and the Accounts Receivable and Payable.
- 13. Issues on Financial Statement 13 • By using different valuation methods permitted in accounting, various profit results will be obtained. • Some values recorded on the income statement are based on judgments and appraisals.
- 14. Good fortune is what happens when opportunity meets with planning. - Thomas Alva Edison 14 BKM Sowan Horan, LLP 15301 Dallas Parkway, Suite 960 Dallas, Texas 75001 Phone: 214-545-3965 Fax: 214-545-3966 www.bkmsh.com For more information about Introduction to Income Statement, please visit: http://bit.ly/BKMSH-Income-Statement