Principles of Accounting, 4th edition1 The Income Statement 3

Principles of Accounting, 4th edition2 2 PowerPoint 17Chapter 3, Unit 4 The Income Statement Format Who? What? When? Revenue minus Expenses equals Net Income (Net Loss) $ $

Principles of Accounting, 4th edition3 3 PowerPoint 18Chapter 3, Unit 4 The Income Statement: Determining Net Income (Net Loss) (a) (b) (c) (d) (e) $ –––––––––– $ ========== $ Revenue–Expenses=Net Income (Net Loss) When REVENUE is greater than expenses there is a NET INCOME. When EXPENSES are greater than revenue there is a NET LOSS.

Principles of Accounting, 4th edition4 4 PowerPoint 19Chapter 3, Unit 5 Revenue and Expense Accounts Determine Net Income or Net Loss Revenue and Expense Accounts Net Income or Net Loss Owner’s Capital Account DEBIT Decreases the Balance NET LOSS CREDIT Increases the Balance NET INCOME

Principles of Accounting, 4th edition5 5 PowerPoint 20Chapter 3, Unit 5 Income Statement Accounts Debits and credits for income statement accounts are determined by how they affect owner’s equity.

Principles of Accounting, 4th edition6 6 PowerPoint 21Chapter 3, Unit 5 Summary of Debit and Credit Theory Balance Sheet Accounts

Principles of Accounting, 4th edition7 7 PowerPoint 22Chapter 3, Unit 5 Summary of Debit and Credit Theory Income Statement Accounts

Principles of Accounting, 4th edition8 8 PowerPoint 23Chapter 3, Unit 5 Transaction Analysis: Asking the Right Questions 1. Which accounts were affected? 2. Were the accounts A, L, OE, R, or E accounts? 3. Did the accounts increase or decrease? 4. Were the accounts debited or credited?

Principles of Accounting, 4th edition9 9 PowerPoint 24Chapter 3, Unit 5 The Owner’s Capital and Drawings Accounts: What Are They? (page 1) C. PICCOLO, CAPITAL DEBIT Decrease (c) Losses CREDIT Increase (a) Owner’s investment (b) Profits

Principles of Accounting, 4th edition10Principles of Accounting, 4th edition10 PowerPoint 24Chapter 3, Unit 5 The Owner’s Capital and Drawings Accounts: What Are They? (page 2) C. PICCOLO, DRAWINGS DEBIT Increase (a) Withdrawals of assets and cash (b) Owner’s salary CREDIT Decrease The Drawings account is a record of all withdrawals of assets by the owner.

Principles of Accounting, 4th edition11Principles of Accounting, 4th edition11 PowerPoint 25Chapter 3, Unit 5 Calculating the New Capital: Net Income and Drawings, Drawings Smaller than Net Income (page 1) Owner’s Equity D. Quan, Capital May 1$ Add: Net Income for May $5 000 Less: D. Quan, Drawings Increase in Capital D. Quan, Capital May 31$

Principles of Accounting, 4th edition12Principles of Accounting, 4th edition12 PowerPoint 25Chapter 3, Unit 5 Calculating the New Capital: Net Income and Drawings, Drawings Smaller than Net Income (page 2) Owner’s Equity D.K. Kirchner, Capital June 1$ Add: Net Income for June $6 000 Less: D.K. Kirchner, Drawings Increase in Capital D.K. Kirchner, Capital June 30$ Net Income INCREASES Capital. Drawings DECREASE Capital.

Principles of Accounting, 4th edition13Principles of Accounting, 4th edition13 PowerPoint 26Chapter 3, Unit 5 Calculating the New Capital: Net Loss and Drawings Owner’s Equity K. Chari, Capital July 1$ Less: Net Loss for May $1 500 Less: K. Chari, Drawings Decrease in Capital K. Chari, Capital July 31$

Principles of Accounting, 4th edition14Principles of Accounting, 4th edition14 PowerPoint 27Chapter 3, Unit 5 Drawings Larger than Net Income Owner’s Equity C. Hnatyshin, Capital August 1$ Add: Net Income for May $ 310 Less: C. Hnatyshin, Drawings Decrease in Capital C. Hnatyshin, Capital August 31 $ Net Loss DECREASES Capital.

Principles of Accounting, 4th edition15Principles of Accounting, 4th edition15 PowerPoint 28Chapter 3, Unit 5 The General Ledger