Income Statement
Identify Income Statement Accounts
Which of the following appear on the Income Statement?
✗ Cash
✓ Service Revenue
✓ Rent Expense
✗ Accounts Payable
✓ Salaries Expense
✗ Capital
Classify Revenues & Expenses
Classify each account
Account
Sales Revenue
Utilities Expense
Interest Expense
Service Revenue
Rent Expense
Sales Revenue
Utilities Expense
Interest Expense
Service Revenue
Rent Expense
Expense or Revenue
Revenue
Expense
Expense
Revenue
Expense
Revenue
Expense
Expense
Revenue
Expense
Prepare an Income Statement
The following information relates to ABC Services for December
Utilities Expense
Salaries Expense
Service Revenue
Rent Expense
Depreciation Expense
Salaries Expense
Service Revenue
Rent Expense
Depreciation Expense
1,200
5,000
15,000
3,000
800
5,000
15,000
3,000
800
Task
Prepare an Income Statement and calculate net income.
ABC Services
Income Statement for December
Revenues
Service Revenue ____ 15,000
Total Revenue ____ 15,000
Expenses
Rent Expense ____ 3,000
Salaries Expense ____ 5,000
Utilities Expense ____ 1,200
Depreciation Expense ____ 800
Total Expenses ____ 10,000
Net Income ____ 5,000
Net Income or Net Loss
Revenue 8,000 | Expenses 6,500
➧ Net Income = 1,500
Revenue 12,000 | Expenses 14,000
➧ Net Loss = 2,000
Revenue 5,000 | Expenses 5,000
➧ Break-even | No profit, no loss
Mini Case Study
A small consulting firm prepares its financial statements at the end of the year.
Questions
What is the main purpose of the Income Statement?
➛ To measure profit or loss for a specific period
Name two expense accounts that may appear on it.
➛ Rent Expense
➛ Salaries Expense
How does net income affect owner’s capital?
➛ Net income increases owner’s equity
What happens if expenses increase but revenue stays the same?
➛ Net income decreases
Which statement is prepared immediately after the Income Statement?
➛ Statement of Owner’s Equity
Quick Quiz
What does an Income Statement show?
➛ A financial statement showing revenues, expenses, and profit/loss
What period does an Income Statement cover?
➛ A specific accounting period | month, quarter, year
Cash is shown on the Income Statement.
➛ False
How is net income calculated?
➛ Revenue − Expenses
Give one example of an expense account.
➛ Rent Expense | Utilities Expense | Salaries Expense
Balance Sheet ➧ Here