Preparing an

Income Statement

LESSON 7-1

An income statement reports financial information over a specific period of time, indicating the financial progress of a business in earning a net income or a net loss.

Expenses are the amounts a business pays to operate the business and earn the revenue. The revenue earned and the expenses incurred to earn that revenue are reported in the same fiscal period.

INCOME STATEMENT

LESSON 7-1 3

INCOME STATEMENT INFORMATION ON A WORK SHEET page 182

LESSON 7-1 4

HEADING OF AN INCOME STATEMENT

1

2

3

page 182

1. Center the name of the company on the first line.

2. Center the name of the report on the second line.

3. Center the date of the report on the third line.

LESSON 7-1 5

REVENUE, EXPENSES, AND NET INCOME SECTIONS OF AN INCOME STATEMENT

1Revenue3 Revenue amount

4Expenses

5Account titles 6 Expense amount

8Total expenses 9 Total of expenses

12 Net Income

7 Single line

11 Single line

10 Calculate net income

14 Double lines

13 Record net income

2 Account title

page 183

The percentage relationship between one fi nancial statement item and the total that includes that item is called a component percentage.

On an income statement, component percentages are calculated by dividing the amount of each component by the total amount of sales.

 Total Expenses/Total Sales = Total Expenses Component

Percentage  Net Income/ Total Sales = Net Income Component

Percentage  

COMPONENT PERCENTAGE

LESSON 7-1 7

COMPONENT PERCENTAGE ANALYSIS OF AN INCOME STATEMENT page 184

LESSON 7-1 8

INCOME STATEMENT WITH TWO SOURCES OF REVENUE AND A NET LOSS

1Revenue

3 Revenue amounts2Account titles

6Net Loss

7 Record Net Loss

5 Total Revenue

4 Total of revenue

page 185

LESSON 7-1 9

stakeholderscomponent percentage

TERMS REVIEW page 186

Balance Sheet Information on a Work Sheet

LESSON 7-2

A Balance Sheet contains what information? Assets, Liabilities and Owner’s Equity

Assets = Liabilities + Owners Equity (LEFT SIDE-Left Side of Balance Sheet) = (RIGHT

SIDE-Right Side of Balance Sheet)

BALANCE SHEET

LESSON 7-2 12

BALANCE SHEET page 187

LESSON 7-2 13

HEADING OF A BALANCE SHEET page 187

1

2

3

1. Center the name of the company on the first line.

2. Center the name of the report on the second line.

3. Center the date of the report on the third line.

LESSON 7-2 14

ASSETS AND LIABILITIES SECTIONS OF A BALANCE SHEETpage 188

4 Liabilities1 Assets

Total Liabilities8

2 Account titles

3 Asset amounts

Single line 7

6Liability amounts

5Account titles

Total of liabilities 9

LESSON 7-2 15

OWNER ’S EQUITY SECTION OF A BALANCE SHEET page 189

7 Total Liab. and Owner’s Eq.

5 Total Assets

1 Owner’s Equity

2 Account title 3Capital amount

4 Single line

6Total of assets

8Total of Liabilities and Owner’s Equity

9Compare totals 10 Double lines

LESSON 7-2 16

OWNER ’S EQUITY REPORTED IN DETAIL ON A BALANCE SHEET page 190

2Beginning capital amount

6Difference

8Current capital amount

1 Beginning capital

3 Net Income

4 Drawing

Ending capital7

9 Total Liabilities and Owner’s Equity

5 Single line