Test IV - Income Statement

The following are the transactions of Shehgarlynn Repair Service. Journalize the following transactions in proper form. The chart of accounts includes: Cash and Bank; Prepaid Rent; Supplies; Repair  Equipment; Accounts Payable; Accounts Receivable; Shehla, Capital; Shehla, Withdrawal; Repair Fees Earned; Salaries Expense; Advertising Expense; and Supplies Expense.

January 1, 2013, Shehla invested $15,000 cash and $5,000 of repair equipment in the business. (The cash deposit to Bank of America checking account No.0013447)

January 1, 2013, Paid twelve (12) month's rent in advance, $500 per month. check no. 001

January 5, 2013, Bought repair supplies from Arden Co. on account, amounting of $500. (These  supplies have not yet been consumed or used up).

January 10, 2013, Perform repair work, received $750 cash, and had to bill Gary Co. for remaining  balance of $250. (cash was deposited to the Bank of America)

January 18, 2013, Shehla paid her home telephone bill, amounting of $120, check no. 002

January 20, 2013, Advertising bill for $500 from Jerry Co. received but payment not due yet.   (advertising has already appeared in the newspaper).

January 24, 2013, Paid salary to Shehla as a manager of the company, amounting of $5,000, check no. 003

January 30, 2013, Paid insurance for 1 year in advance, $100 per month. check no. 004.

After  preparing the trial balance, prepare the Income Statement.

What is Income Statement?

Income Statement - Is a report that present revenue, expenses, and net income or net loss for a business for a period of time.

It is divided into two parts.

1. Heading 
2. Body

1. Heading - Asks three questions.

1. WHOSE business is it?
2. WHAT statement is being prepared?
3. WHEN is it being prepared?

2. Body - Lists revenue and expenses.

A comparison of these two items will show either net income or net loss. 

When total revenue exceeds total expenses, the excess represents the income. 

When the total expenses exceed the total revenue, the difference represents a net loss.

Note: The income statement compares the revenue earned for as period of time with the expenses incurred for the same period.

You should remember 

• If the revenue exceeds the expenses, the excess is known as net income.
• If total expenses are greater than revenue, the resulting difference is known as a net loss.

Example: Income Statement

                                           Shehgarlynn Laundry

                                             Income Statement

                                  For the year Ended December 31, 2007

Revenue:

    Income from services......................................................................................$74,000

Expenses:

   Repair expenses.............................................$2,350

   Salaries .........................................................14,500

   Dept. Water and Power...................................5,350

   Gas Company................................................. 2,750

   Miscellaneous Expense ...................................3,560

Total Expenses.....................................................................................................28,510

Net Income .........................................................................................                $45,490

What are Financial Statement?

Financial Statements - are prepared at least once a year. This is known as the accounting period.
An accounting period may follow the calendar, in which case it begins on January 1 and end on December 31 of the same year.

The business is then said to have a calendar year accounting period.

Any business that has an accounting period consisting of 12 months other than a calendar year is generally known as a fiscal-year accounting period.

Financial Statement is also known as Interim Reports.

Basically three financial reports are prepared:

1. Income Statement - A financial statement that presents revenue and expenses and the net income or loss for a specific period of time.
2. Statement of Owner's Equity (Capital Statement) - A financial statement that shows the change in the value of the ownership in a business over a period of time. The change in capital is due to income or loss and withdrawals by the owner over a period of time.
3. Balance Sheet - A financial that shows the financial position of a business at a particular moment in time a detailed presentation of the assets, liabilities, and owner's equity. Actually, it is a detailed accounting equation, in which the total value of assets is equal to the liabilities plus proprietor' capital.

Financial Accounting (7th Edition) by Libby, Robert/ Libby, Patricia/ (Google Affiliate Ad)