Preparing Financial Statements: The Income Statement

contra account

A ledger account which is deducted from or offset against a related account in the financial statements. Example: accumulated depreciation, purchase returns and allowances, sales return and allowances.

net income

The difference between revenues and expenses for a period.

net loss

The difference if expenses exceed revenues.

cost of goods sold

The main difference between the income statement of a merchandising firm and that of a service firm is the inclusion of an amount for the ____ __ ____ ____ (to customers) which appears on the income statement of a merchandising firm.

gross margin

This amount is deducted from the revenue figure (sales) to arrive at an intermediate amount called ________ _______ or gross profit on sales.

income statement

We report the details of revenue and expense in an __________ __________

revenue - expenses = net income

What is the basic income statement equation?

expenses

______ are costs that the business incurs to make sales or earn revenues. ______ include all costs of operating the business. Examples include the cost of merchandise sold, salaries, utilities, and interest payments.

revenues

_______ are defined as cash or promises of cash that flow into the business as a result of operations. This refers to all sales, both cash and credit, of merchandise normally sold by the business. Some inflows of cash are not considered revenues because they come form merchandise normally not sold by the business.

cost of goods available for sale

beginning inventory + purchases

cost of good sold

goods available for sale - ending inventory