1. The Income Statement
BAF3M

2. Revenue
Amounts of money earned from the sale of goods or services during the routine operation of the business.
Revenue can be recorded from a promise of money (Accounts Receivable)
For example: Fees Earned, Service Revenue, Sales Revenue

3. Expenses
The costs of items or services used up in the routine operation of the business.
Can be recorded even if the business hasn’t paid for them yet (Accounts Payable)
For example: Salaries, wages, advertising expenses, delivery expenses

4. Net Income/Net Loss
Net Income is the difference between revenue and expenses, when revenue is greater than expenses
Net Loss is the difference between revenue and expenses, when expenses are greater than revenues
Net Income is also referred to as PROFIT
For example:
$500 (Revenue) - $400 (Expenses) = $100 (Net Income)
$500 (Revenue) - $700 (Expenses) = ($200) (Net Loss)

5. Income Statement
Presents the revenue, expenses, and net income/loss for a specific period of time (an accounting period / fiscal period)

6. For the Year Ended December 31, 2012
Beyonce’s DayCare
Income Statement
For the Year Ended December 31, 2012
Revenue
Babysitting Fees Earned
$250,000
Total Revenue
Expenses
Advertising
1,200
Rent
12,000
Salaries
60,000
Supplies
350
Utilities
15,000
Total Expenses
88,550
Net Income
$161,450

7. Step 1 – Statement Heading
A Three Line Heading is Used
WHO? – The name of the individual, business or other organization
WHAT? – The name of the financial statement (in this case, the income statement)
WHEN? – The period of time being measured by the income statement
For the (month, year, quarter) ended (date)
Example: For the month ended March 31, 2013

8. Step 2 – Prepare Revenue Section
The largest Revenue item (stream) is listed first
Revenue is totalled in the left column and placed in the right column.

9. Step 3 – Prepare Expenses
Expenses are listed in Alphabetical order
Expenses are totalled in the left column and placed in the right column.

10. Step 4 - Find Net Income / Loss
Revenues – Expenses = Net Income (Net Loss)
Double Underline and add $

11. For the Year Ended December 31, 2012
Beyonce’s DayCare
Income Statement
For the Year Ended December 31, 2012
Revenue
Babysitting Fees Earned
$250,000
Total Revenue
Expenses
Advertising
1,200
Rent
12,000
Salaries
60,000
Supplies
350
Utilities
15,000
Total Expenses
88,550
Net Income
$161,450

12. GAAP: Time Period Principle
Requires the definition and use of the same period of time for the accounting period / fiscal period.
Why?
It is important for consistency purposes that financial information can be measured and compared.

13. GAAP: Matching Principle
States that expenses should be recorded and matched with the revenue they help to generate during the same accounting period.
This results in an accurate net income, because it reflects the business’ activities over the period.
Expenses are recorded when they are incurred, not when they are paid.
For example:
If an expense was incurred, but not yet paid, an expense is still recorded with an Accounts Payable
Debit: Expense, Credit: Accounts Payable

14. GAAP: Revenue Recognition Principle
Revenues are recorded when they are EARNED, not when cash is paid.
For example:
If a service was performed and no cash was paid, the business will record an accounts receivable and a revenue
Debit: Accounts Receivable, Credit: Service Revenue (Fees Earned)

15. Activity
Read pages 67-73
pg. 73, Ex 1,2, 4-6