AOF Principles of Accounting Unit 2, Lesson 6 The Income Statement Copyright © 2008–2011 National Academy Foundation. All rights reserved.

Step 5 in the accounting cycle is to prepare financial statements 1 Source Documents – Paper trail of financial transactions  2 General Journal – Chronological listing of transactions  3 General Ledger – Details activity by account  4 Trial Balance – Proves Debits = Credits  5 Financial Statements – Income Statement, balance sheet, SCOE, statement of cash flow 6 Post-closing journal entries – Temp accts = $0 7 Post-closing Trial Balance – Debits still equal credits

The income statement is a high-level way of seeing how the company has performed during the accounting cycle Revenue _ – Expenses Net Income (or Net Loss)

One purpose of the income statement is to show a company’s net income Revenue—Money coming in for selling a good or a service Operating Expenses— Money spent specifically to bring in revenue Other Income or Expenses—Financial activity not directly related to the main purpose of the business Net Income—Revenue minus expenses

Income statements serve a variety of purposes Income statements are high-level tools used by managers, investors, and creditors to: Show past performance Predict future performance Estimate future cash flow