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)

For the Year Ended December 31, 2012 Beyonce’s DayCare Income Statement For the Year Ended December 31, 2012 Revenue Babysitting Fees Earned $250,000 Total Revenue Expenses Advertising 1,200 Rent 12,000 Salaries 60,000 Supplies 350 Utilities 15,000 Total Expenses 88,550 Net Income $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 $

For the Year Ended December 31, 2012 Beyonce’s DayCare Income Statement For the Year Ended December 31, 2012 Revenue Babysitting Fees Earned $250,000 Total Revenue Expenses Advertising 1,200 Rent 12,000 Salaries 60,000 Supplies 350 Utilities 15,000 Total Expenses 88,550 Net Income $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