Basic accounting Concepts: The Income Statement Income Statement Income statement (profit and loss statement, statement of earnings, statement of operations)

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Presentation transcript:

Basic accounting Concepts: The Income Statement Income Statement Income statement (profit and loss statement, statement of earnings, statement of operations) is accounting report that summarizes the revenues and the expenses, report the results of operation and indicates reason for the entity’s profitability (or lack thereof) of an accounting period. It is a flow report, as contrasted with the balance sheet, which is a status report.

Basic accounting Concepts: The Income Statement Cash Accounts receivable Inventories Collection activities Earnings activities Purchasing or production activities Basic Business Financial Flows

Basic accounting Concepts: The Income Statement 6. The Accounting Period Concept Accounting measures activities for a specified interval of time, called the accounting period. 7. The Conservatism Concept This concept suggests the period when revenue and expense should be recognized. –Recognize revenues (increases in retained earnings) only when they are reasonably certain. –Recognize expenses (decreases in retained earnings) as soon as they are reasonably possible.

Basic accounting Concepts: The Income Statement 8. The Realization Concept This Concept indicates the amount of revenue that should be recognized from given sale, refers to inflows of cash or claim to cash arising from sale of goods or services.... That the amount recognized as revenue is the amount that is reasonably certain to be realized. 9. The Matching Concept When a given event affect both revenues and expenses, the effect on each should be recognized in the same accounting period.

Basic accounting Concepts: The Income Statement 10.The Consistency Concept This concept states that once an entity has decided on one accounting method it should use the same method for all subsequent events of the same character unless it has a sound reason to change methods. 11.The Materiality Concept The Accountant does not attempt to record events so insignificant that the work of recording them is not justified by the usefulness of the results.

Basic accounting Concepts: The Income Statement