1. Income Statement

2. Objectives Describe the importance of income statements.
Identify sources of revenue and expenses.
Given a list of transactions, categorize revenues and expenses.

3. Terms Accounts payable-Unpaid bills or debt.
Accrual accounting – Income and expenses that are anticipated. Inventory increase and decreases are also included.
Accrued interest – Amount of interest that would be due if the note was paid off on the date the statement is prepared. Interest built up over a period of time.

4. Terms Net income – Revenue – expenses
Owner Equity statement – Uses a combination of the balance sheet and the income statement to determine the businesses equity at the end of the financial period.
Revenue – Income to the business from goods and services.
Unused supplies – inventory.

5. Terms
Cash Accounting – Methods of accounting where income is credited to the year they are paid.
Expense – Cost involved with producing a product or service.
Income – Payment received from goods or services, can be cash or non- cash

6. Importance of an Income Statement.
Answers 2 questions
Did the business end the year with a profit or loss?
How much was the profit or loss?

7. 5 Primary uses of an income statement
Profitability
Financial Efficiency
Profit or loss
Repayment capacity
Loan application support

8. Cash vs. Accrual Accounting
Cash accounting recognizes only cash income and expenses
Cash revenue - cash expenses = net cash income
Net cash income - depreciation = net income from operations
Net income from operation  gain/loss on sale of capital assets = net income
Accrual – Recognizes income and expenses not yet actually paid. Gross revenue - cash expenses - depreciation  non-cash expense adjustment = net income from operation
Net income from operations  gain/loss on sale of capital assets = net income

9. Summary of revenue and expenses
Revenue = cash receipts from product sales or dividends on interest income.
Short or long term asset sales
Inventory adjustments

10. Examples of revenue Cash Revenues Non-cash Revenues Cash sales
Government payments
Custom work receipts
Non-cash Revenues
Acct. Receivable
Changes in inventory

11. Summary of Revenue & Expenses
operating
interest
non-cash expense adjustment

12. Examples of expenses Cash operating Non-cash expenses seed fertilizer
chemicals
Non-cash expenses
depreciation
changes in unused supp., acct. pay., accrued int., accrued taxes

13. Net Income Net income = revenue - expenses
Net income calculated annually
Corresponds with income tax reporting dates