Revenues…. They ‘aint assets

Here’s the definition goods or services of customers. is the sale to Revenue proceeds from the Revenue is the proceeds from the sale of goods or services to customers.

Recognition of Revenue Whenever a business takes in money or is promised money for products made or services rendered, they generate Revenue. Some examples: - A gym obtains revenue from membership fees -Real estate firms earn revenue from commissions they make from property sales -Lawyers, Accountants, Dentists, earn fees from clients which is Revenue -Retail stores earn Revenue from the sales of their products

Expenses… They ‘aint Liabilities

Here’s the Definition Expenses are the costs incurred to generate revenue. But how do you decide what’s an expense and what’s a liability? Liabilities are financial obligations or upcoming duties that a company must pay. Expenses are costs incurred by the company as they attempt to make revenue. So Expenses are when a business spends money to make money.

The Income Statement Equation Well there really is no “Equation” but the goal of the Income statement is to show Net Profit or Net Loss. And that is achieved by the calculating the following: REVENUE – EXPENSES = Profit or Loss

Recording Revenue and Expenses In order to get the most accurate account of Revenue and expenses we need to employ the Accrual Basis of Accounting which states: Revenue is only recorded when earned and expenses are recorded when incurred. This matches up with the Revenue Recognition Principle which states: Revenue is recorded even if cash has not yet been physically received.

But, sir?!?! Why you no teach us exactly HOW to make an income statement???

Income Statements in 4 Steps Step 1: Title (Who, What, When) As in our other major financial statements, we need a title telling who the company is, what type of statement and what the accounting period is. PysioCentral Income Statement As at July 31/2014

Step 2 Prepare the revenue section Remember, revenue is received from products sold or services rendered. This section needs a few things: Revenue Sub heading Dollar Sign Addition Line Physiotherapy session fees $ Equipment rental 650 Total Revenue Revenue is listed in order from biggest to smallest.

Step 3 Prepare the Expenses Section Expenses Sub Heading Salaries$3 850 Advertising 2450 Maintenance 720 Total Expenses Line to show calculation of Net income

Step 4 Put it all together! An calculate Net Income or Net Loss Remember, The final total has to be double underlined, and a dollar sign must be added. If the number ends up being negative (Net Loss) then it should be put inside a bracket.

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