THE INCOME STATEMENT

1
Chapter 5.2

• THE INCOME STATEMENT

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

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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

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Income Statement (pg. 128 for another example)
Advertising
Bank Interest
Insurance Expense
Repairs Expense
Wages
at top of any column below any line
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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
  owners 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

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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)