0% found this document useful (0 votes)
21 views9 pages

Lecture Income Statement

FABM INCOME STATEMENT

Uploaded by

mhanma25
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
0% found this document useful (0 votes)
21 views9 pages

Lecture Income Statement

FABM INCOME STATEMENT

Uploaded by

mhanma25
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 9

The Financial Statements

Financial statements are a structured representation with the objective of

providing information about the financial position, financial performance and

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

complete set of financial statements. A complete set of financial statements

comprises:

1. A statement of financial position as at the end of the period;

2. A statement of comprehensive income for the period;

3. A statement of changes in equity for the period;

4. A statement of cash flows for the period; and

5. Notes to Financial Statement, comprising a summary of significant accounting

policies and other explanatory information.

Relationships among the Financial Statements

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.

Page 1|9
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

explains the change in owner’s equity.

3. The statement of financial position reports the ending owner’s equity, taken

directly from the statement of changes in equity.

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

the balance sheet.

Elements of Financial Statement

The elements of the financial statements are:

• assets, liabilities and equity – relate to a reporting entity’s financial position;

and

• income and expenses – relate to a reporting entity’s financial performance

THE INCOME STATEMENT

Comparison of Income Statements

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

Page 2|9
provide a better measure of performance, the income statement of a merchandising

business is presented with additional items:

Service Merchandising

Income Statement Income Statement

Revenues from services Net Sales

minus

Cost of Sales
minus equals

Gross Profit

Add or minus

Expenses Income or Expenses


(see details below)
equals equals

Profit Profit

“Single Step Approach” “Multi-Step Approach”

The Two Forms of Income Statement

Nature of Expense Method / Natural Form / Single-Step Approach

Expenses are aggregated or combined in the income statement according to

their nature and are not reallocated among various functions within the entity. This

method is simple to apply in many smaller enterprises because no allocation of

operating expenses between functional classification is necessary. Other calls this


Page 3|9
straight-forward method of presentation as “single-step approach.” The statement of

comprehensive income or income statement is a statement showing the performance of

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

Consultancy Services follows:

Dunong Consultancy Services


Income Statement
For the Month Ended July 31, 2017

Note

Consultancy Fees ₱ 200,000


Other Income 1 13,000

Total Income ₱ 213,000


Expenses:
Salaries Expense ₱ 25,000
Rent Expense 20,000
Utilities Expense 10,000
Depreciation Expense 2 4,000
Bad Debts Expense 1,000
Other Expenses 3 500
Finance Cost 4 300 60,800
NET INCOME ₱ 152,200

Notes to Financial Statements

Note 1 - Other Income

Dividend Income ₱ 10,000


Gain on Sale of Equipment 3,000

Total ₱ 13,000

Note 2 - Depreciation Expense

Depreciation Expense - Furniture and Fixture ₱ 3,000


Depreciation Expense - Equipment 1,000
Total ₱ 4,000

Page 4|9
Note 3 - Other Expenses

Loss on Sale of Furniture and Fixture ₱ 500

Note 4 - Finance Cost

Interest Expense ₱ 300

Figure 2.1 Income Statement (Using the Nature of Expense Method)

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

disaggregated in the supporting note to the financial statement.

Observe the following rules in preparing the income statement:

1. Note that the statement consists of four parts: heading, revenues earned,

expenses incurred and net income or profit.

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.

Page 5|9
6. A single rule is placed under the last figure to be added or subtracted and a

double line or rule is placed under the final figure.

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

expenses and finance costs.

Function of Expense Method / Functional Form / Multiple-Step Approach / Cost of

Sales Method

This method, also referred to as the “cost of sales” method, classifies expenses

according to their function as part of cost of sales, distribution/selling, administrative and

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

multiple classifications and intermediate differences to highlight significant relationships.

Some call this method of presentation as “multiple-step” approach.

Page 6|9
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

Notes to Financial Statements

Note 1 - Net Sales


Sales ₱ 664,000
Less: Sales Returns and Allowances ₱ 6,480
Sales Discounts 13,280 19,760
Net Sales ₱ 644,240

Note 2 - Cost of Sales


Merchandise Inventory, beginning ₱ 180,000
Add: Net Cost of Purchases:
Purchases ₱ 445,200
Add: Freight in 2,560
Total Cost of Goods Delivered ₱ 447,760
Less: Purchase Returns & Allow. ₱ 14,400
Purchase Discounts 8,904 23,304 424,456
Goods Available for Sale ₱ 604,456
Less: Merchandise Inventory, End 118,400
Cost of Sales / Cost of Goods Sold ₱ 486,056

Note 3 - Distribution Expenses/Selling


Expenses - Store
Sales Salaries Expense ₱ 48,000
Advertising Expense 5,684
Total ₱ 53,684

Page 7|9
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

Figure 2.2 Income Statement (Using the Function of Expense Method)

Element/Components of the Function of Expense Method or the Multiple- Step

Approach Income Statement

1. Net Sales. The first line after the heading of the Income Statement is the net

sales. To show the details of its computation, it is supported by a note to financial

statement. See note 1 of figure 2.2 on how it is being computed.

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

gross profit. See note 2 of figure 2.2 for the computation.

3. Other Income. Income derived from sources other than the company’s main line

of business. Examples are interest income, dividends income, commissions

income, rent income, and gain on sale of assets. To show the details of this

income account, it is supported by a note to financial statement.

Page 8|9
4. Distribution Expenses / Selling Expenses. Those expenses incurred in directly

selling the merchandise. This includes salaries of sales personnel, expenses

incurred in promoting or advertising the product, commissions on sales, store

supplies used, utilities used in the store, depreciation expense of assets

used in the store and the cost of transporting the merchandise to the customer’s

place of business under the account title freight-out or delivery expense.

5. General / Administrative Expenses. Expenses necessary in the management

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

debts or uncollectible accounts.

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

selling and administrative expenses.

6. Other Expenses. Expenses not connected to the operating activities of the

business. An example of this is loss on sale of assets and discount lost.

7. Finance Cost. Interest expense paid for the use of borrowed funds.

Page 9|9

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy