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Contents:
1. 2. 3. 4. 5.
Definition and Explanation Format of Income Statement Different Items of Income Statement Income Statement of Manufacturing Companies Service Enterprises
$ Sales Less: Sales discount Sales returns and allowances Net sales Less Cost of Goods Sold: Merchandise inventory opening Purchases Less: Purchase discounts Purchase returns and allowances Net purchases Plus carriage inwards Delivered cost of net purchases Cost of goods available for sale Less merchandise inventory Cost of goods sold Gross profit Less Operating Expenses: salaries Advertising Depreciation Total Operating expenses Net operating income Plus Other revenues: Commission received 5,000 3,000
$ 6500 8500
$ 525000 15000
510,000 35,000 320,000 8,000 312,000 1,2500 324,500 359,500 37,500 322000 188,000 91,600 7000 8500 107100 80,900 2500 83,400
900 82500
Sales:
It is the gross amount of goods sold or services rendered during an accounting period.
Net Sales:
When sales discount, sales returns and allowances to customers are deducted or subtracted from gross sales the result is net sales.
Gross Profit:
Goods are normally sold at a price that is more than the cost price. Gross profit or gross margin is what remains after cost of goods sold is deducted from net sales. This is the margin that is available to cove the other expenses for a period and to yield net income, if there is any. Gross Profit = Net sales - Cost of goods sold
Operating Expenses:
Merchandising or trading concerns incur operating expenses in addition to cost of goods sold. So, the expenses which are incurred for the generation of revenues from the sales of goods are called operating expenses. Operating expenses may be divided into two:
1. 2.
Selling Expenses: All expenses regarding sale of goods and sending them to the buyer belong to this class e.g. Carriage outwards, advertisements, salesmen's salaries, sales commission, traveling expenses, bad debts, packaging expenses etc. Administrative Expenses: All expenses connected with the office and its conduct are called administrative expenses. Examples of administrative expenses include office salaries, office rent, electric charges, postage and telegrams, telephones, printing and stationary etc.
OR Net operating income = Net sales - Cost of goods sold - Operating expenses
Net Income:
Other revenues are added to an other expenses are deducted from net operating income to arrive at net income. Net income is what is left after the other revenues have been added to net operating income and other expenses have been deducted from it. Net income = Net operating income - Other revenues - Other expenses Or Net operating income = Net sales - Cost of goods sold - Operating expenses + Other revenues - Other expenses
Materials available for use Less materials inventory, December 31, 2005
9950400 1270600
Direct materials consumed Direct labor Factory overhead: Indirect labor Salaries Payroll taxes Power Heat Light Factory supplies Depreciation - factory building Depreciation - machinery Repairs and maintenance Patent amortization Tools and dies used Insurance on building and machinery 1329300 972000 489000 112000 69200 44300 50000 68300 403000 145800 33200 178600 21200
8679800 7346400
3915900
19942100 2338000
Total cost to be accounted for Less work in process inventory, December 31 2005.
22280100 1303200
20976900 966100
Cost of goods available for sale Less finished goods inventory, December 31, 2005.
21943000 658000
21285000
Gross profit Less commercial expenses: Marketing expenses Administrative expenses 580000 533750
3465000
1113750
Income from operation Other income and expenses: Royalties and dividends Gain from sales of plant 167000 12000
2351250
Net addition
49500
2400750 1064250
1336500