Lecture Income Statement
Lecture Income Statement
cash flows of an entity that is useful to a wide range of users in making economic
decisions.
An entity shall present with equal prominence all of the financial statements in a
comprises:
The financial statements are based on the same underlying data and are
fundamentally related. They will be prepared as they will be enumerated below in the
same order.
1. The income statement / SCI / Statement of Profit or Loss reports all income and
expenses during the period. The profit or loss is the final figure in this statement.
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2. The statement of changes in equity / Capital Statement considers the profit or
loss figure from the income statement as one of the determining factors that
3. The statement of financial position reports the ending owner’s equity, taken
4. The statement of cash flows reports the net increase or decrease in cash
during the period and ends with the cash balance reported in the balance sheet.
This statement is prepared based on information from the income statement and
and
Service entities perform services for a fee. In ascertaining profit, a basic income
statement is all that is needed. Profit is measured as the difference between revenues
from services and expenses. In contrast, merchandising entities earn profit by buying
and selling goods. These entities use the same basic accounting methods as service
entities but the process of buying and selling merchandise require some additional
accounts and concepts. This process results in a more complex income statement. To
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provide a better measure of performance, the income statement of a merchandising
Service Merchandising
minus
Cost of Sales
minus equals
Gross Profit
Add or minus
Profit Profit
their nature and are not reallocated among various functions within the entity. This
the enterprise for a given period of time. It summarizes the revenues earned and
expenses incurred for that period of time. The income statement for Dunong
Note
Total ₱ 13,000
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Note 3 - Other Expenses
The Accounting International standards states that as a minimum, the face of the
income statement should include only line items. It means that items that are more
similar in economic characteristics should be aggregated in the face of the report and
1. Note that the statement consists of four parts: heading, revenues earned,
2. The third line in the heading must always be for a time period.
3. Margin on the left side – the extreme margin is used to describe the major
sections and the inner margin is used to describe the accounts contained in the
major section.
4. Money columns on the right side – the extreme margin is for the major amounts
and the inner money column is the amounts of the described accounts.
5. Peso signs in the final money column (extreme right) are placed on the first and
last amounts.
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6. A single rule is placed under the last figure to be added or subtracted and a
7. Income from the principal line of operation called operating revenue is always
presented first followed by other income. Expenses may be presented from the
highest amount to the lowest amount (descending order) except for other
Sales Method
This method, also referred to as the “cost of sales” method, classifies expenses
other operating activities. This presentation often provides information that is more
relevant to users than the nature of expense method but the allocation of costs to
functions can arbitrary and involves considerable judgment. This method provides
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Teena's Buddy Depot
Income Statement
For the Year Ended December 31, 2017
Note
Net Sales 1 ₱ 644,240
Less: Cost of Sales 2 486,056
Gross Profit ₱ 158,184
Less: Operating Expenses:
Distribution Expenses 3 ₱ 53,684
Administrative Expenses 4 103,600 157,284
Net Income ₱ 900
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Note 4 - Administrative
Expenses/General/Office
Office salaries Expense ₱ 40,000
Utilities Expense - Office 36,000
Depreciation Expense - Building 11,000
Depreciation Expense - Equipment 10,000
Insurance Expense 4,000
Supplies Expense 2,600
Total ₱ 103,600
1. Net Sales. The first line after the heading of the Income Statement is the net
2. Cost of Sales. The cost of sales or cost of goods sold represents the cost of
merchandise inventory sold by the business to its customers. This comprises the
company’s biggest expense and it is deducted from net sales to arrive at the
3. Other Income. Income derived from sources other than the company’s main line
income, rent income, and gain on sale of assets. To show the details of this
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4. Distribution Expenses / Selling Expenses. Those expenses incurred in directly
used in the store and the cost of transporting the merchandise to the customer’s
of the office. This includes the salaries of office personnel, office supplies used,
utilities used in the office, depreciation of office assets and the provision for bad
Note: If the business has a small office, does not maintain a store, and sales are
also made in the office, operating expenses need not be categorized under
7. Finance Cost. Interest expense paid for the use of borrowed funds.
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