income statement slideshow

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WRITING AN EFFICIENT INCOME STATEMENT By: Michelle Jones

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Page 1: Income  Statement Slideshow

WRITING AN EFFICIENT INCOME STATEMENT

By: Michelle Jones

Page 2: Income  Statement Slideshow

ABSTRACT

Most college students who wish to go into business for themselves and small business

owners do not know the importance of writing an income statement. Many businesses fail due

to lack of planning and money management. According to Patricia Schaefer, “A common fatal

mistake for many failed businesses is having insufficient operating funds.” An income

statement is one of the three financial statements that will show how, where, and when money is misused and give a picture of the flow

of funds that come into and go out of the business. A company will be able to see through

the use of an efficiently written income statement if insufficient funds or poor money

management was the cause.

Page 3: Income  Statement Slideshow

WHAT IS AN INCOME STATEMENT?

A statement that:Shows the flow of money in and out of a business.Covers a period of time.Provides information on sales, cost of

goods sold, expenses, and other monetary aspects of a business.Provides information for managers and

investors to see if money was made or lost.Can be written in two ways.

Page 4: Income  Statement Slideshow

TERMS 2

KNOW

Revenue - money received Expenses - money or asset used to

earn revenue. Net Income -revenue minus expenses Asset -anything that a person owns

that can be sold for money Net Loss – expenses exceeds revenue Sales – money made from the sale of

merchandise Sales returns and allowances –

merchandise returned to the seller or reduction in the price of merchandise due to a flaw.

Cost of goods sold – cost of any product sold.

Selling expense – incurred directly into the sale of merchandise.

Administrative expense – are not related to merchandise but whole company.

Other income – money received outside of the main business.

Other expenses – money owed or assets used that are not business related.

Page 5: Income  Statement Slideshow

THE 2 WAYS TO WRITE AN INCOME STATEMENT

Page 6: Income  Statement Slideshow

SINGLE-STEPSample Products Co.

Income StatementFor the Five Months Ended May 31, 2009

Revenues & GainsSales Revenues $100,000Interest Revenues 5,000Gain on Sale of Assets       3,000

Total Revenue & Gains   108,000

Expenses & LossesCost of Goods Sold 75,000Commissions Expense 5,000Office Supplies Expense 3,500Office Equipment Expense 2,500Advertising Expense 2,000Interest Expense 500Loss from Lawsuit      1,500

Total Expenses & Losses    90,000

Net Income $ 18,000

http://www.accountingcoach.com/online-accounting-course/04Xpg03.html

Page 7: Income  Statement Slideshow

MULTI-STEPSample Products Co.

Income StatementFor the Five Months Ended May 31, 2009

Sales $100,000 Cost of Goods Sold     75,000 

Gross Profit     25,000 

Operating ExpensesSelling Expenses

Advertising Expense 2,000Commissions Expense     5,000 7,000 

Administrative ExpensesOffice Supplies Expense 3,500Office Equipment Expense     2,500      6,000 

Total Operating Expenses    13,000 

Operating Income     12,000 

Non-Operating or OtherInterest Revenues 5,000 Gain on Sale of Investments 3,000 Interest Expense (500)Loss from Lawsuit    (1,500)

Total Non-Operating      6,000 

Net Income $ 18,000 

http://www.accountingcoach.com/online-accounting-course/04Xpg04.html

Page 8: Income  Statement Slideshow

HOW ARE THEY DIFFERENT?

SINGLE-STEP MULTI-STEP

Gives a quick overlook of company finances.

Consist of only a single step.

Focuses on total revenues minus total expense equal net income.

Is more detailed. Contains several steps. Gives a clearer picture

of all revenues and expenses.

Gives a more accurate revenue.

Page 9: Income  Statement Slideshow

IF EXPENSE EXCEEDS REVENUE…

Your Business Name

Income StatementFor Month Ended June 30, 2010

Revenues

Net sales $5,000.00

Rental revenue   1,000.00

Total revenues   $6,000.00

Expenses

Wages expense $6,500.00

Cost of goods sold 1,000.00

Utilities expense 250.00

Supplies expense  250.00

Total operating expenses   8,000.00

Net income/loss ($2,000)

http://accountingaide.com/examples/incomestmt.htm

Page 10: Income  Statement Slideshow

NET LOSS NET LOSS

NET LOSS

OoPpSs!

Page 11: Income  Statement Slideshow

WHAT IF I MAKE A MISTAKE?

Page 12: Income  Statement Slideshow

MISTAKES CAN BE FIXED ON THE CURRENT YEARS INCOME STATEMENT .

1. Record it as an unusual item.2. Subtract it from gross profit.

3. Continue as usual.

Page 13: Income  Statement Slideshow

KEEP N MIND

Anytime an income statement is done by the company, a person must keep in mind that some of the numbers are just estimates of what is expected to be the cost.

Double check the numbers against any paper work before submitting the income statement.

Page 14: Income  Statement Slideshow

BENEFITS The company will see where it is

spending too much money and were more money may need to be spent.

The company will also be able to tell if there is a problem with the manufacturing of its products.

Page 15: Income  Statement Slideshow

THE BOTTOM LINE

An income statement is the first financial step to running a successful

business.