lesson 15-1 preparing an income statement. new vocabulary net sales: total sales less sales...
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LESSON 15-1LESSON 15-1
Preparing an Income Statement
New Vocabulary
Net sales: Total sales less sales discount and sales returns and allowances
Cost of merchandise sold: The original price of all merchandise sold during a fiscal period
Gross profit on sales: The revenue remaining after cost of merchandise sold has been deducted
INCOME STATEMENT INFORMATION ON A WORK SHEET
page 448
REVENUE SECTION OF AN INCOME STATEMENT FOR A MERCHANDISING BUSINESS
11
22
33 44
55
66
page 449
7788 99
COST OF MERCHANDISE SOLD SECTION OF AN INCOME STATEMENT FOR A MERCHANDISING BUSINESS
11
2233
page 450
446655
COMPLETING AN INCOME STATEMENT FOR A MERCHANDISING BUSINESS
11
22
44
55
page 452
77
3366
Audit Your Understanding
What is the major difference between the income statement for merchandising business and a service business?
The cost of merchandise sold sectionHow was the cost of merchandise sold
calculated? Beginning merchandise inventory, plus net
purchases, equals total cost of merchandise available for sale, less ending merchandise inventory, equals cost of merchandise sold
Audit Your Understanding
How can the amount of net income calculated on the income statement be verified?
Compare it with the amount on the worksheet
15-2 Analyzing an Income Statement
New Vocabulary Financial ratio: A comparison
between two items of financial information
Earnings per share: The amount of net income after federal income tax belonging to a single share of stock
Price-earnings ratio: The relationship between the market value per share and earnings per share of a stock
ANALYZING AN INCOME STATEMENT SHOWING A NET LOSS page 457
Price-EarningsRatio
=Earnings
perShare
÷Market Price
per Share
Earningsper Share
=Number of
SharesOutstanding
÷Net Income
after FederalIncome Tax
FINANCIAL RATIOSpage 459
Earnings per Share
Price-Earnings Ratio
$32.13=2,500÷$80,313.95
10.7=$32.13÷$345.00
Audit Your Understanding
For a merchandising business, every sales dollar includes what four components?
(1) cost of merchandise sold, (2) gross profit on sales, (3) total expenses, and (4) net income
How does a company determine acceptable component percentages?
By making comparisons with prior fiscal periods as well as with industry standards
15-3 Preparing a Statement of Stockholder’s Equity New Vocabulary
Statement of stockholders equity: A financial statement that shows changes in a corporation’s ownership for fiscal period
Par Value: A value assigned to a share of stock and printed on the stock certificate
CAPITAL STOCK SECTION OF THE STATEMENT OF STOCKHOLDERS’ EQUITY page 461
3.Total stock issued at the end of the year
1.Stock at the beginning of the year
2.Stock issued during the year
Multiply parvalue by number
Shares$50 x 2,000
RETAINED EARNINGS SECTION OF THE STATEMENT OF STOCKHOLDERS’ EQUITY page 462
The two changes:Net Income and
Dividends
Audit Your Understanding
What financial information does a statement of stockholders equity report?
The changes in a corporation’s ownership for fiscal period
What are the two major sections of a statement of stockholders’ equity?
Capital stock and retained earnings
Audit Your Understanding
Where is the information found to prepare the capital stock section of the statement of stockholders’ equity
In the capital stock general ledger accountWhere is the beginning balance of retained
earnings found? In the Balance Sheet credit column of the
worksheet
Audit Your Understanding
How does a corporation distribute a portion of income to stockholders?
As a dividend
Where is the amount of dividends found? In the Balance Sheet debit column of a
worksheet
15-4 BALANCE SHEET INFORMATION ON A WORK SHEET page 464
CURRENT ASSETS SECTION OF A BALANCE SHEET
page 465
Book value of accounts receivable
1.Heading 2. Assets section
Book Valueof Accts.Receivable
PLANT ASSETS SECTION OF A BALANCE SHEET
page 466
Book Value
New Vocabulary
Current liabilities: Liabilities due within a short time, usually within a year Example: Accounts Payable
Long-term liabilities: Liabilities for more than a year Example: Mortgage or a Car Loan
LIABILITIES SECTION OF A BALANCE SHEET
page 467
Account title and amount of each current liability
Total liabilities
22
STOCKHOLDERS’ EQUITY SECTION OF A BALANCE SHEET
page 468
COMPLETED BALANCE SHEET page 469
(continued on next slide)
COMPLETED BALANCE SHEET page 469
(continued from previous slide)
New Vocabulary
Supporting schedule: A report prepared to give details about an item on a financial statement
Examples: Schedule of Accounts Receivable &
Schedule of Accounts Payable
Audit Your Understanding
What are the two ways assets are classified?
Current and plant assetsWhat three items are listed on the
balance sheet for accounts having a related contra asset account?
(1) the balance of the asset account, (2) the balance of the asset’s contra account, and (3) book value
Audit Your UnderstandingWhat is an example of a long-term liability? Mortgage payable
What are the two supporting schedules that might accompany a balance sheet?
Schedule of accounts payable and schedule of accounts receivable
Famous Last Words
Famous Last Words
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I wonder where the mother bear
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Famous last words…
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The End
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