+ How Accountants use Income Statements p. 266 exercises: 1, 2,5 We will explore different ways to extract meaningful information from our income statement and balance sheet.

+ Comparing Income Statements When comparing income statements for two consecutives years here are two calculations for each item:

+ Comparing Income Statements EXAMPLE Compared to: The calculation:_____________________ ItemYear 1Year 2 Car Expense$50, 250$ ItemYear 1Year 2Dollar Increase or Decrease Percentage Increase or decrease Car Expense $50, 250$

+ Comparing Income Statements The last two columns can be very useful in analyzing any item on the income statement In the last example they may look for a reason for the increased car expense. _____________________________________________________ Are A/R and sales also going up? If not are the cars old and uneconomical? _____________________________________________________

+ Trend Analysis Shows financial data over a number of consecutive periods It is not that easy to interpret these figures, so lets change them to percentages (or you could use a graph) _______________________= Year 1Year 2Year 3Year 4Year 5Year 6 Sales$55000$60000$75000$45000$105000$ Year 1Year 2Year 3Year 4Year 5Year 6 Sales$55000$60000$75000$45000$105000$ Sales %100%109.1%136.4%81.8%190.9%203.6%

+ Graph

+ Compare Income Statements from two companies Put the company information side by side on the income statement (see page 265 in textbook) Turn the numbers into percentages by ____________________________________ This is called the “common-size” form To make the calculation, put the dollar amount of the item over the dollar amount of sales and multiply by 100.