century 21 accounting © thomson/south-western lesson 15-1 preparing an income statement
TRANSCRIPT
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 15-1LESSON 15-1
Preparing an Income Statement
CENTURY 21 ACCOUNTING © Thomson/South-Western
USES OF FINANCIAL STATEMENTSUSES OF FINANCIAL STATEMENTS
Financial statements provide the primary source of information needed by owners & managers to make decisions on the future activity of a business
They provide information about a business’s financial condition, changes in the financial condition, & the progress of operations
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LESSON 15-1
CENTURY 21 ACCOUNTING © Thomson/South-Western
INCOME STATEMENTINCOME STATEMENT
An income statement is used to report a business’s financial progress
Merchandising businesses report revenue, cost of merchandise sold, gross profit on sales, expenses, & net income or loss
The income statement of a merchandising business has 3 main sections: Revenue section Cost of merchandise sold section Expenses section
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LESSON 15-1
CENTURY 21 ACCOUNTING © Thomson/South-Western
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LESSON 15-1
INCOME STATEMENT INFORMATION INCOME STATEMENT INFORMATION ON A WORK SHEETON A WORK SHEET page 448
• Information from a completed work sheet is used to prepare an income statement
• Amounts in all revenue & expense accounts & Merchandise Inventory are reported on an income statement
CENTURY 21 ACCOUNTING © Thomson/South-Western
REVENUE SECTION OF AN INCOME STATEMENT FOR REVENUE SECTION OF AN INCOME STATEMENT FOR A MERCHANDISING BUSINESSA MERCHANDISING BUSINESS
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LESSON 15-1
A merchandising business will have more accounts to report on the income statement Sales Sales Discounts Sales Returns & Allowances
Total sales less sales discount & sales returns & allowances is called net sales
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LESSON 15-1
6. Contra account amounts
REVENUE SECTION OF AN INCOME STATEMENT REVENUE SECTION OF AN INCOME STATEMENT FOR A MERCHANDISING BUSINESSFOR A MERCHANDISING BUSINESS
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1. Heading
7. Contra account total
3. Title of revenue account 8. Net Sales
4. Sales amount 9. Net sales amount
5. Less contra accounts
2. Revenue section
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LESSON 15-1
COST OF MERCHANDISE SOLD SECTION OF AN COST OF MERCHANDISE SOLD SECTION OF AN INCOME STATEMENT FOR A MERCHANDISING INCOME STATEMENT FOR A MERCHANDISING BUSINESSBUSINESS
The original price of all merchandise sold during a fiscal period is called the cost of merchandise sold Also known as Cost of goods sold
or Cost of sales The totals of the sales contra accounts
& the purchases contra accounts are not described on a separate line Each amount is immediately to the
right of an amount column ruled with a single line The single ruled line indicates that the
column is being totaled. The amount adjacent to the column is
the sum of that column
CENTURY 21 ACCOUNTING © Thomson/South-Western
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LESSON 15-1
COST OF MERCHANDISE SOLD SECTION OF AN COST OF MERCHANDISE SOLD SECTION OF AN INCOME STATEMENT FOR A MERCHANDISING INCOME STATEMENT FOR A MERCHANDISING BUSINESSBUSINESS
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1. Cost of Merchandise Sold section
2. Beginning inventory
3. Purchases section
4. Total cost of merchandise available for sale
5. Ending inventory
6. Cost of merchandise sold
CENTURY 21 ACCOUNTING © Thomson/South-Western
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LESSON 15-1
COMPLETING AN INCOME STATEMENT COMPLETING AN INCOME STATEMENT FOR A MERCHANDISING BUSINESSFOR A MERCHANDISING BUSINESS
The revenue remaining after cost of merchandise sold has been deducted is called Gross profit on Sales Measures how effectively the business
is performing in its primary functions of buying & selling merchandise
Calculating a ratio between gross profit on sales & net sales (component percentage) enables management to compare its performance to prior fiscal periods. Reported in the fourth column of the
income statement
CENTURY 21 ACCOUNTING © Thomson/South-Western
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LESSON 15-1
COMPLETING AN INCOME STATEMENT COMPLETING AN INCOME STATEMENT FOR A MERCHANDISING BUSINESSFOR A MERCHANDISING BUSINESS
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7. Component percentage
6. Double lines
5. Net Income after Federal Income Tax
4. Less Federal Income Tax Expense
3. Net Income before Federal Income Tax
2. Expenses section
1. Gross Profit on Sales
CENTURY 21 ACCOUNTING © Thomson/South-Western
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LESSON 15-1
TERMS REVIEWTERMS REVIEW
net sales cost of merchandise sold gross profit on sales
page 454