1. The Income Statement

2. Up to now...... Learned a variety of accounts – Assets – Liabilities – Owner’s Equity – Revenue – Expenses Learned our first financial statement – Balance Sheet

3. Net Income or Net Loss REV EXP REV EXP REVNUES > EXPENSES = NET INCOME EXPENSES > REVENUE = NET LOSS

4. Income Statement Revenue & Expenses are shown on an Income Statement – A detailed report showing if a business is profitable during a certain time period – If there is profit – the company’s Equity increases – If there is a loss – the company’s Equity decreases Income Statement is more like a video camera – Shows the reader the ongoing story throughout the time period. – not just the final picture

5. Income Statement The Balance Sheet is a picture at any given time over the life of a business – Accounts go up and down over the years The Income statement is only the totals of certain accounts during a specific period – $2500 in advertising expense during September Start over in October – occur $1000 IN ad expense

6. Income Statement A financial statement that summarizes the items of revenue and expense, and shows the net income or net loss of a business for a given period of time – Fiscal Period – the time for which the financial statements are prepared – Often annually or quarterly Used by owners, managers, investors, bankers, creditors, government (taxes)

7. GAAP OF THE DAY

8. The Time Period Concept The operating cycle of a firm must be divided into distinct accounting periods – Year, Month, or Quarter Once the reporting period is established, you use the GAAP guidelines – For example – The Matching Principle

9. GAAP OF THE DAY #2

10. The Consistency Principle The accounting period must be the same from period to period – No 4 months and then 6 months and then 2 months Accountants must use the same methods from period to period – If anything changes – the changes and reasons for doing so need to be disclosed in the notes to the financial statements

11. The Title Similar to the Balance Sheet – Who – What – When The only difference The accountant must let the period know for how long the income statement was prepared – EXAMPLE: For the month ended September 30, 2011 or For the year ended December 31, 2011 Mustang Market Income Statement For the month ended June 30, 2011

12. The Income Statement Revenues – Listed first on the income statement – Listed in order of significance The largest total goes at the top Kelsey’s revenue streams – Alcohol, Catering, Food, Merchandise – What order?

13. The Income Statement Expenses – Nothing special to it – Listed alphabetically

14. Dissecting the Income Statement Similar Heading to Balance Sheet For the Month or Period Ended Revenues listed first Result of sale of goods and services Each Expense Listed in Detail Added up and Summarized as Total Expenses Subtract Expenses from Revenues Revenues > Expenses = Net Income Revenues < Expenses = Net Loss

15. The Two Columned Income Statement To Properly use the two columns of an income statement – First column – for sub totalling If there are more than one forms of revenue and/or expenses – Second column – totals for revenue, expenses & at the bottom, net income or net loss Net Income or Net Loss is always double underlines

16. Income Statement Puzzle Get into a group of 4 – You will be given pieces of an income statement – Instructions are simple – put them in the correct order!

17. PERSONAL INCOME STATEMENT