i.

Income Statement
The Income Statement provides a summary of revenues and expenses over a period of time, such as a month,
quarter, or year. It provides information about the profitability of a business during the period specified.

The following is a cash basis income statement for Sample Café’s first month of operation. Calculate the total
expenses and net income for the business.
Sample Café
Income Statement, Cash Basis
Month Ended January 31, 20xx
 Item Value Note

$40,00
Revenue Excludes $2,200 in receipts not yet deposited.
0

Equipment $0 Purchased last month for $12,000 (5-year life).

Insurance $600 Premium for whole year.

Rent and Utilities $4,500 Includes $2,500 in rent and utility deposits.

Coffee Purchased $2,300 Includes $100 worth thrown away.

Cups Purchased $1,600 $700 still in inventory.

$14,80
Payroll Owe $2,400 in taxes.
0

Interest on Loan $200 Paid mid-month.

$12,00
Advertising / Promotion $3,000 each week.
0

Total Expenses $35100

Net Income $4900

Total expenses= Insurance + Rent & Utilities + coffee purchased + Cup purchased + Payroll with
taxes + Interest on loan + Advertising/ Promotion
= 600+2000+2200+900+17200+200+12000 = $36000
Net Income = Revenue – Total Expenses
= 40000 – 35100 = $4900

Use the notes from the cash basis income statement for Sample Café in question 1 (above) to
redo it on an accrual basis. Be sure to break out cost of goods sold from the other expenses,
and include a line item for the gross margin.

Total Revenue = 40000 + 2200 = $42200

Coffee Purchased = 2300 – 100 =2200

Cups purchased = 1600 In Inventory = 700

Cost of goods sold = 2200 + 1600 – 700 = $3100

Gross Margin = 42200 – 3100 = $39100

Account Balance

42200
Revenues $ ▲▼

3100
 Cost of Goods Sold $ ▲▼

39100
Gross Margin, or Gross Profit $ ▲▼

Expenses  

17200
 Salaries and Wages $ ▲▼

2000
 Rent and Utilities $ ▲▼

12000
 Advertising $ ▲▼

600
 Insurance $ ▲▼
 Account Balance

2400
 Equipment Depreciation $ ▲▼

200
 Interest $ ▲▼

34400
Total Expenses $ ▲▼

4700
Net Income $ ▲▼