income statement slideshow
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WRITING AN EFFICIENT INCOME STATEMENT
By: Michelle Jones
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.
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.
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.
THE 2 WAYS TO WRITE AN INCOME STATEMENT
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
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
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.
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
NET LOSS NET LOSS
NET LOSS
OoPpSs!
WHAT IF I MAKE A MISTAKE?
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.
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.
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.
THE BOTTOM LINE
An income statement is the first financial step to running a successful
business.