1. THE INCOME STATEMENT Chapter 5.2

2. Terminology Review Revenue is the money or promise of money received from sale of goods or services Expenses are the costs incurred to run a business (e.g., salaries, utilities, advertising, etc.) Net Income = Revenues - Expenses

3. Income Statement A financial statement that summarizes the items of revenue and expenses Determines the net income or net loss for a stated period of time Accounting period may be a month, quarter (three months), six months, year or and regular period of time Fiscal period is a synonym for accounting period

4. Income Statement (pg. 128 for another example) who what when Indent one column Total here Double underline $ at top of any column & below any line Advertising Bank Interest Insurance Expense Repairs Expense Wages

5. Who uses the Income Statement? Owners and Managers  Tells owners and managers if their business is earning a profit, and if so, how much. Bankers  Need to know if the borrower will be able to replay their loan. Income Tax Authorities  Every business is required to prepare an income statement once a year and must included in the owner’s income tax return.

6. GAAP Time-Period Concept provides that accounting will take place over specific time periods known as fiscal periods of equal length. Allows comparison of periods Matching Principle says expenses should be matched to the revenue they helped generate in the same period Expenses are recorded when incurred, whether paid in cash or on credit

7. Trial Balance Including New Accounts

8. The Big T… Rules for Debits and Credits DEBIT SIDE CREDIT SIDE

9. The Income Statement NOW YOU TRY IT Refer back to Pacific Trucking Example. (See handout)