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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