Statement of Income

BAFP102
 Income Statement

Income Statement
 A report showing the profit or loss from a firm’s operations over a given
period of time.
 “How profitable is the business?”
Sales (revenue) – Expenses = Profits (income)
 Revenue from product or service sales
 Costs of producing product/service (cost of goods sold)
Income Statement

 “How profitable is the business?”

Sales (revenue) – Expenses = Profits (income)
 Operating expenses (marketing, selling, general and administrative
expenses, and depreciation)
 Financing costs (interest paid)
 Tax payments
 INCOME STATEMENT

Sales
This refers to the revenues earned when a company sells its goods, products,
merchandise, etc.

Cost of Goods Sold

The cost of producing or acquiring goods or services to be sold by a firm.

Gross Profit
Sales less the cost of goods sold.
 INCOME STATEMENT

Operating Expenses
Costs related to marketing and selling a firm’s product or service, general and
administrative expenses, and depreciation.

Operating Income
Earnings before interest and taxes are paid

Financing Costs
The amount of interest owed to lenders on borrowed money
 INCOME STATEMENT

Net Income Available To Owners (Net Income)

Income that may be distributed to the owners or reinvested in the company.

Depreciation Expense
Costs related to a fixed asset, such as a building or equipment, distributed over its
useful life
 Inventory Accounts

Manufacturing
 Merchandising
 Manufacturing
 Raw Materials
 Work in Process
 Finished Goods

Merchandising

7
INCOME STATEMENT
INCOME STATEMENT

Operating Activities Financing Activities Taxes

Sales Revenue Operating Income Earnings Before Taxes
– Cost of producing or – Interest expense – Income taxes
acquiring product or on debt =
service (financing costs) Net Income Available
(cost of goods sold)
= to Owners
= Gross profit Earnings Before Taxes
– Marketing and selling
expenses, general and
administrative
,
expenses and
depreciation
(operating expenses)
=
Operating Income
INCOME STATEMENT

Income Statement for Houser & Associates, Inc.,

for the Year Ending December 31, 2013
Percent of Sales
100%
–65%
35% Gross profit margin

–24%

12% Operating profit margin

–2%
9%
–2%
7% Net profit margin
Income Statement (Example)
 EXERCISE

List the statement on which each of the following items may appear. Choose from
(A) income statement, (B) balance sheet, or (C) neither.
a. Net income k. Common stock
b. Cost of goods sold l. Interest payable
c. Gross profit m. Loss from flood
d. Retained earnings n. Land
e. Paid-in capital in excess of par o. Taxes payable
f. Sales p. Interest income
g. Supplies expense q. Gain on sale of property
h. Investment in G. Company r. Dividend income
i. Dividends s. Depreciation expense
j. Inventory t. Accounts receivable
u. Accumulated depreciation
v. Sales commissions
 EXERCISE

The following relate to the income statement of Growth Company for the year
ended 2012.

Purchases $180,000
Purchase returns 5,000
Sales 240,000
Cost of goods sold 210,000
Ending inventory 30,000

What is the beginning inventory?

 EXERCISE

The following relate to Owens data in 2012.

Purchases $580,000
Beginning inventory 80,000
Purchase returns 8,000
Sales 900,000
Cost of goods sold 520,000

What is the ending inventory?

 EXERCISE

Changes in account balances of Gross Flowers during 2012 were as follows:

Increase in:
Assets $400,000
Liabilities 150,000
Capital stock 120,000
Additional paid-in capital 110,000

Assuming there were no charges to retained earnings other than dividends of

$20,000, the net income (loss) for 2012 was ____.
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