1. LESSON 15-1 Preparing an Income Statement

2. New Vocabulary  Net sales: Total sales less sales discount and sales returns and allowances  Cost of merchandise sold: The original price of all merchandise sold during a fiscal period  Gross profit on sales: The revenue remaining after cost of merchandise sold has been deducted

3. INCOME STATEMENT INFORMATION ON A WORK SHEET page 448

4. REVENUE SECTION OF AN INCOME STATEMENT FOR A MERCHANDISING BUSINESS 1 2 34 5 6 page 449 7 89

5. COST OF MERCHANDISE SOLD SECTION OF AN INCOME STATEMENT FOR A MERCHANDISING BUSINESS 1 2 3 page 450 4 6 5

6. COMPLETING AN INCOME STATEMENT FOR A MERCHANDISING BUSINESS 1 2 4 5 page 452 7 3 6

7. Audit Your Understanding What is the major difference between the income statement for merchandising business and a service business?  The cost of merchandise sold section How was the cost of merchandise sold calculated?  Beginning merchandise inventory, plus net purchases, equals total cost of merchandise available for sale, less ending merchandise inventory, equals cost of merchandise sold

8. Audit Your Understanding How can the amount of net income calculated on the income statement be verified?  Compare it with the amount on the worksheet

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10. 15-2 Analyzing an Income Statement New Vocabulary  Financial ratio: A comparison between two items of financial information  Earnings per share: The amount of net income after federal income tax belonging to a single share of stock  Price-earnings ratio: The relationship between the market value per share and earnings per share of a stock

11. ANALYZING AN INCOME STATEMENT SHOWING A NET LOSS page 457

12. Price-Earnings Ratio = Earnings per Share ÷ Market Price per Share Earnings per Share = Number of Shares Outstanding ÷ Net Income after Federal Income Tax FINANCIAL RATIOS page 459 Earnings per Share Price-Earnings Ratio $32.13 = 2,500÷$80,313.95 10.7 = $32.13 ÷ $345.00

13. Audit Your Understanding For a merchandising business, every sales dollar includes what four components?  (1) cost of merchandise sold, (2) gross profit on sales, (3) total expenses, and (4) net income How does a company determine acceptable component percentages?  By making comparisons with prior fiscal periods as well as with industry standards

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15. 15-3 Preparing a Statement of Stockholder’s Equity New Vocabulary  Statement of stockholders equity: A financial statement that shows changes in a corporation’s ownership for fiscal period  Par Value: A value assigned to a share of stock and printed on the stock certificate

16. CAPITAL STOCK SECTION OF THE STATEMENT OF STOCKHOLDERS’ EQUITY page 461 3.Total stock issued at the end of the year 1.Stock at the beginning of the year 2.Stock issued during the year Multiply par value by number Shares $50 x 2,000

17. RETAINED EARNINGS SECTION OF THE STATEMENT OF STOCKHOLDERS’ EQUITY page 462 The two changes: Net Income and Dividends

18. Audit Your Understanding What financial information does a statement of stockholders equity report?  The changes in a corporation’s ownership for fiscal period What are the two major sections of a statement of stockholders’ equity?  Capital stock and retained earnings

19. Audit Your Understanding Where is the information found to prepare the capital stock section of the statement of stockholders’ equity  In the capital stock general ledger account Where is the beginning balance of retained earnings found?  In the Balance Sheet credit column of the worksheet

20. Audit Your Understanding How does a corporation distribute a portion of income to stockholders?  As a dividend Where is the amount of dividends found?  In the Balance Sheet debit column of a worksheet

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22. 15-4 BALANCE SHEET INFORMATION ON A WORK SHEET page 464

23. CURRENT ASSETS SECTION OF A BALANCE SHEET page 465 Book value of accounts receivable 1.Heading 2. Assets section Book Value of Accts. Receivable

24. PLANT ASSETS SECTION OF A BALANCE SHEET page 466 Book Value

25. New Vocabulary  Current liabilities: Liabilities due within a short time, usually within a year  Example: Accounts Payable  Long-term liabilities: Liabilities for more than a year  Example: Mortgage or a Car Loan

26. LIABILITIES SECTION OF A BALANCE SHEET page 467  Account title and amount of each current liability  Total liabilities 2

27. STOCKHOLDERS’ EQUITY SECTION OF A BALANCE SHEET page 468

28. COMPLETED BALANCE SHEET page 469 (continued on next slide)

29. COMPLETED BALANCE SHEET page 469 (continued from previous slide)

30. New Vocabulary  Supporting schedule: A report prepared to give details about an item on a financial statement  Examples:  Schedule of Accounts Receivable & Schedule of Accounts Payable

31. Audit Your Understanding What are the two ways assets are classified?  Current and plant assets What three items are listed on the balance sheet for accounts having a related contra asset account?  (1) the balance of the asset account, (2) the balance of the asset’s contra account, and (3) book value

32. Audit Your Understanding What is an example of a long-term liability?  Mortgage payable What are the two supporting schedules that might accompany a balance sheet?  Schedule of accounts payable and schedule of accounts receivable

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34. Famous Last Words

35. Famous last words… I’ll get a world record for this.

36. Famous last words… It’s fire proof.

37. Famous last words… He’s probably just hibernating.

38. Famous last words… What does this button do?

39. Famous last words… Are you sure the power is off?

40. Famous last words… Yeah, I made the deciding vote on the jury, so what of it?

41. Famous last words… The odds of that happening are a million to one.

42. Famous last words… Pull the pin and count to what?

43. Famous last words… Which wire was I supposed to cut?

44. Famous last words… I wonder where the mother bear is.

45. Famous last words… I’ve seen this done on TV.

46. Famous last words… These are the good kind of mushrooms.

47. Famous last words… I’ll hold it and you light the fuse.

48. Famous last words… Let it down slowly.

49. Famous last words… It’s strong enough for both of us.

50. Famous last words… This doesn’t taste right.

51. Famous last words… Nice doggie.

52. Famous last words… I can do that with my eyes closed.

53. Famous last words… I’ve done this before.

54. Famous last words… Well, we’ve made it this far.

55. Famous last words… That’s odd.

56. Famous last words… You wouldn’t hit a guy with glasses on, would you?

57. Famous last words… Don’t be so superstitious.

58. Famous last words… Now, watch this.

59. The End