INCOME STATEMENT
THE FORMULA FOR CALCULATING NET INCOME OR NET LOSS
REVENUE MINUS EXPENSES
THE 4 SECTIONS OF THE BALANCE SHEET
HEADING
ASSETS
LIABILITIES
OWNER'S EQUITY
THE 3 COMPONENT PERCENTAGES THAT MUST ALWAYS BE INCLUDED ON THE INCOME STATEMENT
1. SALES
2. TOTAL EXPENSES
3. NET INCOME OR NET LOSS
THE FINANCIAL STATEMENTS MUST CONTAIN ENOUGH INFORMATION NECESSARY FOR STAKEHOLDERS TO MAKE INFORMED DECISIONS ABOUT A BUSINESS
ADEQUATE DISCLOSURE
THE FINANCIAL STATEMENTS CANNOT BE PREPARED WITHOUT THIS IMPORTANT ACCOUNTANT'S TOOL TO OBTAIN THE NUMBERS
WORK SHEET
THE PROPER WAY TO PHRASE THE DATE ON AN INCOME STATEMENT
"FOR MONTH ENDED...…"
"FOR YEAR ENDED....."
REMEMBER: AN INCOME STATEMENT COVERS THE FINANCIAL PROGRESS OF THE BUSINESS OVER A PERIOD OF TIME.
WHEN A BALANCE SHEET DOES NOT BALANCE, IT IS TYPICALLY BECAUSE OF AN ERROR IN THIS ACCOUNT
CAPITAL
THE FORMULA FOR THE TOTAL EXPENSES COMPONENT PERCENTAGE
TOTAL EXPENSES (NUMERATOR) /
SALES (DENOMINATOR)
THE EXPENSES THAT OCCUR IN A GIVEN FISCAL PERIOD MUST BE CALCULATED AND REPORTED IN THE SAME FISCAL PERIOD THAT THE RELATED REVENUE IS EARNED.
MATCHING EXPENSES WITH REVENUE
THIS RULE DETERMINES IF THE LIABILITIES SECTION OF THE BALANCE SHEET MUST BE TOTALED
IF MORE THAN ONE LIABILITY, THEN TOTAL THE LIABILITIES SECTION
IF ONLY ONE LIABILITY, DO NOT TOTAL THEM
AN AMOUNT WRITTEN IN PARENTHESES ON AN INCOME STATEMENT USUALLY INDICATES THIS
A NEGATIVE NUMBER (A NET LOSS)
THE PROPER WAY TO PHRASE A DATE ON A BALANCE SHEET
A SPECIFIC DATE, FOR EXAMPLE:
MAY 31, 2019
OCTOBER 31, 2019
A BALANCE SHEET SHOWS THE CONDITION OF THE BUSINESS AT A GIVEN MOMENT IN TIME
(A "SNAPSHOT" OF THE ACCOUNTING EQUATION).
THE FORMULA FOR THE NET INCOME COMPONENT PERCENTAGE
NET INCOME (NUMERATOR) /
SALES (DENOMINATOR)
A BUSINESS MUST SELECT A SPECIFIC PERIOD OF TIME, KNOWN AS A "FISCAL PERIOD," OVER WHICH TO REPORT ITS FINANCIAL INFORMATION
ACCOUNTING PERIOD CYCLE
ON AN INCOME STATEMENT, THE MOST IMPORTANT NUMBERS ARE WRITTEN IN THIS COLUMN __________, WHILE A LIST OF ACCOUNT BALANCES ARE WRITTEN IN THIS COLUMN __________.
OUTER
INNER
THIS IS WHERE THE NUMBER COMES FROM TO PREPARE THE REVENUE SECTION OF THE INCOME STATEMENT
THE INCOME STATEMENT CREDIT COLUMN OF THE WORK SHEET
THE FORMULA FOR "CURRENT CAPITAL"
WORK SHEET CAPITAL
PLUS (+) NET INCOME OR MINUS (-) NET LOSS
MINUS (-) DRAWING
WHEN CALCULATING A COMPONENT PERCENTAGE, THE AMOUNT MUST BE ROUNDED TO THIS MANY DECIMAL PLACES
ONE (THE TENTHS PLACE)
FOR EXAMPLE: 100.0, 57.4, 63.5. NOTICE THAT THE PERCENTAGE SIGN IS NOT INCLUDED
REVENUE IS ALWAYS RECORDED AT THE TIME OF SALE, NOT NECESSARILY WHEN CASH IS RECEIVED
REALIZATION OF REVENUE
THE REASON WHY THE DRAWING ACCOUNT IS NOT SEPARATELY LISTED ON A BALANCE SHEET
THE DRAWING ACCOUNT IS INCLUDED WITHIN THE "CURRENT CAPITAL" FORMULA, AND IS ABSORBED INTO THE CAPITAL ACCOUNT
WHEN A BUSINESS EARNS REVENUE FROM MULTIPLE SOURCES, THIS CAN BE EXPECTED OF THE REVENUE SECTION OF THE INCOME STATEMENT
IT WILL SEPARATELY LIST REVENUE FROM EACH SOURCE ON THE SAME INCOME STATEMENT
THIS IS WHERE THE NUMBERS COME FROM TO PREPARE THE ASSETS SECTION OF THE BALANCE SHEET
THE BALANCE SHEET DEBIT COLUMN OF THE WORK SHEET
THE BEST WAY TO JUDGE THE COMPONENT PERCENTAGES TO MEASURE THE FINANCIAL STRENGTH OR WEAKNESS OF THE BUSINESS
BY COMPARING THE COMPONENT PERCENTAGES TO THOSE OF OTHER BUSINESSES IN THE SAME INDUSTRY
THE FINANCIAL STATEMENTS ARE PREPARED WITH THE ASSUMPTION THAT THE BUSINESS WILL EXIST INDEFINITELY
GOING CONCERN
WHEN AN INCOME STATEMENT SHOWS A NET LOSS, THIS CAN BE EXPECTED OF THE TOTAL EXPENSES COMPONENT PERCENTAGE
IT WILL BE GREATER THAN 100% (BECAUSE TOTAL EXPENSES ARE GREATER THAN SALES)