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Chapter 3

The document provides an overview of the Income Statement, detailing its purpose to summarize revenues, expenses, gains, and losses, culminating in net income for a specific period. It describes two formats: multiple-step and single-step, highlighting their differences in presentation. Additionally, it outlines the basic elements of the Income Statement, including net sales, cost of goods sold, operating expenses, and earnings per share.

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4 views11 pages

Chapter 3

The document provides an overview of the Income Statement, detailing its purpose to summarize revenues, expenses, gains, and losses, culminating in net income for a specific period. It describes two formats: multiple-step and single-step, highlighting their differences in presentation. Additionally, it outlines the basic elements of the Income Statement, including net sales, cost of goods sold, operating expenses, and earnings per share.

Uploaded by

abdelrahimnassoura
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

Chapter

Income Statement
The Income Statement
• Summarizes revenues and expenses, and gains
and losses
• Ends with the net income for a specific period
• Multiple-step format—presents separately
– Gross profit
– Operating income
– Income before taxes
– Net income
The Income Statement—Continued
• Single-step format
– Totals all revenues and gains
– Deducts total expenses and losses
Multiple-Step Single-Step
Multiple-step Income Statement Single-step Income Statement
For the Year Ended December 31, 2013 For the Year Ended December 31, 2013

Net revenue $37,586 Net revenue $ 37,586


Cost of sales 16,742 Interest income 488
Gross margin 20,844 Other income -
Operating Expenses: 38,074
General & administrative $ 5,458 Costs and Expenses:
Research & development 5,722 Cost of sales $ 16,742
Restructuring charges 710 11,890 General & administrative 5,458
Operating income 8,954 Research & development 5,722
Interest income (expense) 488 Other losses 1,756
Other gains (losses) (net) (1,756) (1,268)
Restructuring charges 710 30,388
Income before taxes 7,686
Income before taxes 7,686
Provision for taxes 2,394
Provision for taxes 2,394
Net Income $ 5,292
Net income $ 5,292
Basic Elements of the Income
Statement
• Net Sales (Revenues)
• Cost of Goods Sold (Cost of Sales)
• Other Operating Revenue
• Operating Expenses
• Other Income or Expense
Net Sales (Revenues)
• Represents revenue from the sale of principal
goods or services sold to customers
• Shown net of
– Discounts
– Returns
– Allowances
Cost of Goods Sold (Cost of Sales)
• The cost of goods that were sold to produce
revenue
Retailer Manufacturer
Beginning Inventory Beginning Inventory
+ Purchases + Cost of Goods Manufactured
− Ending Inventory − Ending Inventory
Cost of Goods Sold Cost of Goods Sold

• A service firm will not have cost of goods sold,


but it will often have cost of services
Other Operating Revenue
• Depends on the operations of the business
• Examples
– Lease revenue
– Royalties
Operating Expenses
• Consist of two types
– Selling expenses
• Result from a company’s effort to create sales
• Advertising. Sales commissions, and Sales supplies used
– Administrative expenses
• Relate to the general administration of a company’s
operation
• Salaries, Insurance, and Bad debt expense
Other Income or Expense
• Secondary activities not directly related to
operations
• Dividend income. Interest income, Gains
(losses) from sale of assets, and Interest
expense
Earnings per Share
• Earnings divided by the number of shares of
outstanding common stock

Net income
EPS =
Outstanding shares of common stock

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