Income Statement

we learned last time that capital...

also remember...

income statement is important

how businesses use an income statement

Income statement - a financial statement that summarizes the items of revenue and expense, and shows the net income or net loss of a business for a given time period of time.

Let's look at the features of one...

owners and managers

Tells them if they're earning profit, and if so, how much. Helpful in forming company goals/policies and making decisions. They need to be making profit or they will close down. Try to identify problem and change it.

Bankers

They want to see financial statements of companies to which money is being loaned. Keeps banks informed if everything is going smoothly.

income tax authorities

Income statement once a year. The net income figure of a proprietorship must be included on the owner's income tax return. Income statements are sent to the government along with owner' income tax return.

Fiscal period

The period of time over which earnings are measured. all fiscal periods for individual business are the same length... Not necessarily ending at the end of December though!

earnings don't mean anything

fiscal period usually one year

some businesses use shorter periods

even when fiscal periods shorter than one year used

Time period concept

Accounting takes place over specific time periods known as fiscal periods.

The matching principle

Each expense item related to revenue earned must be recorded in the same period as the revenue it helped to earn.

pretty much - more work for accountants :D

Chart of accounts

number in front used to identify

debit and credit

Debit and Credit Balances

Remember these rules...

• Accounts with debit balances are normally assets, expenses, or drawings
• Accounts with credit balances are normally liabilities, capital, or revenue

Trial balance procedure unchanged!