Chapter 2 c

INCOME AND EXPENSES

OWNER’S EQUITY

ACCT 501
Objectives of this Chapter

 Classify and Identify income and

expense as basic element of
accounting
 Define and Identify Owner’s
equity as a basic element of
accounting

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Income Statement
Income Statement accounts, namely revenue
and expense, are classified as nominal or
temporary accounts.

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Expenses
Are decreased in economic benefits during an
accounting period in the form of gross
outflows or depletions of assets or increase
of liabilities that results in decrease in
equity
Expenses are expired cost, or items that were
assets but no longer assets because they
have no future values

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Expenses
The following are the characteristics of
expenses:
1. Sacrifices involving in carrying out the
earning process
2. Actual or expected cash outlfows results
from ordinary activities.
3. Outflows are to be reported gross

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Income Statement
A) Service Income – includes revenues
earned or generated by the business in
performing service for a customer or client.
Example of Income and accounting terms used to describe
income
 Laundry Service by Laundry Shop (Laundry Income)s)
 Medical Service by a Doctor (Medical Fees)
 Dental Service by Dentist (Dental Fee)
 Legal Service by Lawyer (Legal Fees)
 Advisory Service by Consultant (Consultancy Fees)
 Accounting or Auditing Service by CPA (Audit Fees)

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Income Statement
B) Salaries or wages expenses includes all
payments made to employees or workers for
rendering services to the company.
Ex: Month salaries, 13th month Pay, cost of
living allowance, and other benefits given to
the employees.
C. Utilities Expense – expense related to use
of electricity, fuel, water, cable,
telecommunication facilities

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Income Statement
D) Supplies expense covers office supplies
used by a business used in its daily
operations.
E) Insurance expense – expired portion of
premiums paid on insurance coverage such
as premiums paid on health or life insurance,
motor vehicle or other properties

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Income Statement
F) Depreciation Expense is the annual portion of
the cost of tangible assets such as buildings,
machineries and equipment charged as
expense for the last year.
G) Uncollectible accounts expense / doubtful
account expense / bad debts expense –
means amount of receivable charged as
expense for the period because they are
estimated to be doubtful of collection.
H) Interest Expense – is the amount of money
charged to the borrower for the use of borrowed
funds.

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Income Statement
Name of Company
INCOME STATEMENT
For the ________ Ended
Service Revenue Php xxx
Other Income xxx
Total Income Php xxx
Expenses
Salaries and Wages xxx
Depreciation xxx
Supplies xxx
Rent xxx
Insurance xxx
Other Expense xxx
Finance Cost/Miscellaneous xxx xxx
NET INCOME XXX

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Revenue and Expenses
Revenues increase in economic benefits
Characteristics of revenues
1.Inflow of economic benefits arise in the
course of ordinary activities of an enterprise
2.Inflows are to be reported gross
3. Inflows result in increase in equity, other
than increase relating to contributions of
equity

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Illustration 1 (Income Statement)
Taken from the books of Sally’s Jintalan Repair
Service for the month of December, 2017. Prepare
an income statement from the given data below:
Repair Revenue P 200,000
Rent Income 10,000
Salaries and Wages 35,000
Utilities Expense 14,000
Supplies Expense 11,000
Depreciation Expense 2,000
Miscellaneous Expense 3,000

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Illustration 1 (Income Statement)
Taken from the books of Sally’s Jintalan Repair
Service for the month of December, 2017. Prepare
an income statement from the given data below:
Repair Revenue P 200,000
Rent Income 10,000
Salaries and Wages 35,000
Utilities Expense 14,000
Supplies Expense 11,000
Depreciation Expense 2,000
Miscellaneous Expense 3,000

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Illustration 2 (Income Statement)
The following are accounts taken from the books of
Ellen Cua Detective Service for the month of
November 2017. Prepare an Income statements:
Detective Service Income P 240,000
Other Income 12,000
Salaries Expense 40,000
Utilities Expense 20,000
Rent Expense 30,000
Depreciation Expense 5,000
Bad Debts Expense 2,000
Supplies Expense 3,500

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Income Statement
Ellen Cua Detective Service
INCOME STATEMENT
For Month Ended November 30, 2017
Repair Revenue Php 240,000
Other Income 12,000
Total Income Php 252,000
Expenses
Salaries and Wages 40,000
Utilities Expense 20,000
Supplies Expense 3,500
Depreciation 5,000
Rent Expense 30,000
Bad Debts 2,000 100,500
NET INCOME 151,500

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Owner’s Equity
Capital – is an account bearing the name of
the owner representing the original and
additional investment of the owners of the
business increased by the amount of the net
income earned during the year
It increase the cash or other assets withdrawal
b the owner as well as the net loss incurred
during the year.

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Owner’s Equity
Drawing – represents the withdrawals made
by the owner of the business in cash or other
assets.
Income summary – is a temporary account
used at the end of the accounting period to
close income and expense accounts

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Income Statement
Ellen Cua Detective Service
STATEMENT OF OWNER’S EQUITY
For Month Ended November 30, 2017
E. Cua, Capital Php 300,000
Add: Additional Contribution 10,000
Net Income 5,000
Total Income Php 315,000

Less:
Drawings 13,000
E. Cua Capital as of Nov 30, 2018 302,500

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Tom Cruize, The summary of July transaction
are the following:
1 Tom Cruise opened a law firm and invested P50,000 cash
2 He purchased office supplies worth P5,000 on credit from Sea
Enterprises
3 Billed R. Castillo for service rendered , P12,000
4 He bought on Cash table and chairs for the business, amounting to
P6,000
5 Tom Cruise issued promissory note to Sea Enteprises in payment for
transaction No.2
6 Paid the salary of clerk, P5,000 and utility Expenses for P3,000
7 Paid the notes issued to Sea Enterprises
8 Tom Cruize, withdraw P15,000from the business for his personal use
30 Tom Cruize, paid for utilities expense, P3,000

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