Income Statement test PDF

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Test for accounting grade 12, test #7...

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CHAPTER 1 NOTES TEXTBOOK PAGE 12 – 13 TOPIC: THE INCOME STATEMENT The Income Statement  

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A financial statement It shows Net Income (profit) or Net loss for a period of time  not a specific date o For example, the “date” on the Income Statement would state: “for the month (or year) ended June 30, 2020” The only accounts on the Income Statement are: o Revenue o Expenses

The Income Statement reports Net Income (also known as Profit) or Net Loss o o o

Net Income (Profit) = Revenues – Expense Net Income (Profit) occurs when Revenues > Expenses Net Loss occurs when Revenues < Expenses

Revenue    

Also called “Net Income”, “Earning” or “Net Earnings” Represents an increase in Capital  Increases Net Worth Usually a company has one Revenue Account (but there can be more, depending on the company) Possible names for Revenue: o Sales Earned  Money earned selling merchandise (goods) o Interest Revenue  Interest earned from a bank for lending money o Commission Revenue  Commission earned from the sale of proper by a real estate firm o Fees Earned  Money earned for legal services, accounting services, etc. o Rental Revenue

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Expenses     

Textbook Definition: The cost of assets consumed or services used in a company’s ordinary business activities. Simple Definition: The cost of operating (or running) a business Or put another way  the cost of earning Revenue Represents a Decrease in Capital  Decreases Net Worth Examples of Expenses: o Advertising Expense o o o o o o o

Bank Charges (Notice: not all Expense accounts have the word “Expense” in the account name) Delivery Expense Insurance Expense Maintenance Expense Rent Expense Utilities Expense Wages

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Example of an Income Statement

Notes: 

Date  Is over a period of time (e.g. month)

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Indent accounts under Revenue & Expense Headings (this makes the accounts easier to read from the headings)

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“Total Revenue” & “Total Expenses” titles should be indented even more. Omit “Total Revenue” title if there is only one revenue account.

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Dollar signs ($) are place in front of the first Revenue and Expense amount.

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2 Columns  Left column is to record amounts for each account. The second column records the total.

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Expenses are listed according to how they appear in the Chart of Accounts (a list of accounts).

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A single line rule shows a total is about to be calculated (addition or subtraction).

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The last line records Profit (Net Income) or Net Loss. This amount is double line ruled and include a Dollar Sign ($).

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