11.1THE INCOME STATEMENT

© Michael Allison, Trinity Grammar School.Author’s permission required for external use

The Accounting System…

11.1 THE INCOME STATEMENT

Balance Sheet

Income Statem

ent

Trial Balanc

e

4. Prepare a Trial

Balance

5. Prepare Financial Reports

3. Enter transactions in General Ledger

General

LedgerLedger

Ledger

Ledger

Ledger

1. Transaction

s occur

Transaction #1

Transaction #2

Transaction #3

Transaction #4

Transaction #5

Transaction #6

Transaction #7

Transaction #8

Special Journal

s

2. Special Journals

Cash Receipts Journal

Cash Payments Journal

Sales Journal

Purchase Journal

© Michael Allison, Trinity Grammar School.Author’s permission required for external use

At the end of each reporting period all Revenues and Expenses are closed off to the Profi t & Loss Summary account…

ClosingThe balance of the account is reset to zero at the end of the period

Sales [R]

30/6 Cash at Bank 35000

30/6 Profit and Loss Summary 53000 30/6 Debtors Control 18000

53000 53000

Revenue

Expenses

Sales [R]

30/6 Cash at Bank 35000

30/6 Profit and Loss Summary 53000 30/6 Debtors Control 18000

53000 53000

Sales [R]

30/6 Cash at Bank 35000

30/6 Profit and Loss Summary 53000 30/6 Debtors Control 18000

53000 53000

Sales [R]

30/6 Cash at Bank 35000

30/6 Profit and Loss Summary 53000 30/6 Debtors Control 18000

53000 53000

11.1 THE INCOME STATEMENT

© Michael Allison, Trinity Grammar School.Author’s permission required for external use

Revenues and Expenses are closed off so that:

1. Net profit for this period can be determined

2. The net profit for next period can be determined by resetting the balances to zero

11.1 THE INCOME STATEMENT

© Michael Allison, Trinity Grammar School.Author’s permission required for external use

The Profi t and Loss Summary account enables the fi rm to determine whether it has made either a…

Profit and Loss Summary [OE]

30/6 Expense a/c’s 5100

30/6 Revenue a/c’s

9400

9400

9400

Net Profit Net Loss

Revenue

- Expenses

= Net Profit (Loss)

Profit and Loss Summary [OE]

30/6 Expense a/c’s 5100

30/6 Revenue a/c’s

9400

9400

9400

9400

Profit and Loss Summary [OE]

30/6 Expense a/c’s 5100

30/6 Revenue a/c’s

9400

9400

9400

5100

Profit and Loss Summary [OE]

30/6 Expense a/c’s 5100

30/6 Revenue a/c’s

9400

30/6

Capital 4300

9400

9400

4300

Profit and Loss Summary [OE]

30/6 Expense a/c’s 7800

30/6 Revenue a/c’s

5900

7800

7800

Revenue

- Expenses

= Net Profit (Loss)

Profit and Loss Summary [OE]

30/6 Expense a/c’s 7800

30/6 Revenue a/c’s

5900

7800

7800

5900

Profit and Loss Summary [OE]

30/6 Expense a/c’s 7800

30/6 Revenue a/c’s

5900

7800

7800

7800

Profit and Loss Summary [OE]

30/6 Expense a/c’s 7800

30/6 Revenue a/c’s

5900

30/6 Capital 1900

7800

7800

(1900)

11.1 THE INCOME STATEMENT

© Michael Allison, Trinity Grammar School.Author’s permission required for external use

While the Profi t and Loss Summary account shows whether the fi rm made a Net Profi t or a Net Loss , it is not easy to understand

Profit and Loss Summary [OE]

30 Jun Expense accounts 5100 30 Jun Revenue accounts 9400

30 Jun Capital 4300

9400 9400

Information is understandable if:

• Users can comprehend its meaning easily (assuming a reasonable knowledge of business and economics)

11.1 THE INCOME STATEMENT

© Michael Allison, Trinity Grammar School.Author’s permission required for external use

To someone who isn’t an accountant or familiar with this account, the fi rm’s profi t is not easily understandable or easy to calculate

A report is needed to set out this information in a more understandable manner

This report is called the…

Profit and Loss Summary [OE]

30 Jun Expense accounts 5100 30 Jun Revenue accounts 9400

30 Jun Capital 4300

9400 9400

Income Statement

11.1 THE INCOME STATEMENT

© Michael Allison, Trinity Grammar School.Author’s permission required for external use

Profit and Loss Summary [OE]

30 Jun Expense accounts 5100 30 Jun Revenue accounts 9400

30 Jun Capital 4300

9400 9400

Income Statement for the month ended 30 June 2015

$ $

Revenue

Cash sales 6000

Credit sales 3400 9400

less Expenses

Wages 2000

Rent 3000

Insurance 100 5100

Net Profit 4300

Income Statement for the month ended 30 June 2015

$ $

Revenue

Cash sales 6000

Credit sales 3400 9400

less Expenses

Wages 2000

Rent 3000

Insurance 100 5100

Net Profit 4300

Profit and Loss Summary [OE]

30 Jun Expense accounts 5100 30 Jun Revenue accounts 9400

30 Jun Capital 4300

9400 9400

Income Statement for the month ended 30 June 2015

$ $

Revenue

Cash sales 6000

Credit sales 3400 9400

less Expenses

Wages 2000

Rent 3000

Insurance 100 5100

Net Profit 4300

Profit and Loss Summary [OE]

30 Jun Expense accounts 5100 30 Jun Revenue accounts 9400

30 Jun Capital 4300

9400 9400

Income Statement for the month ended 30 June 2015

$ $

Revenue

Cash sales 6000

Credit sales 3400 9400

less Expenses

Wages 2000

Rent 3000

Insurance 100 5100

Net Profit 4300

Profit and Loss Summary [OE]

30 Jun Expense accounts 5100 30 Jun Revenue accounts 9400

30 Jun Capital 4300

9400 9400

11.1 THE INCOME STATEMENT

© Michael Allison, Trinity Grammar School.Author’s permission required for external use

TASK

In-class Homework

SQ1 XSQ2 X