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Preparing Financial Documents The Income Statement &  Balance Sheet
The Income Statement <ul><li>A financial statement that indicates how much money a business earns or loses during a period...
Income Statement <ul><li>Parts of the Income Statement </li></ul><ul><ul><li>REVENUE FROM SALES </li></ul></ul><ul><ul><ul...
Income Statement <ul><li>Gross Sales  (Amount of all sales for the period based on receipts) </li></ul><ul><li>-Returns an...
Income Statement <ul><li>=Net Sales </li></ul><ul><li>Beginning Inventory  (Ending Inventory from last month) </li></ul><u...
Income Statement <ul><li>GROSS PROFIT ON SALES </li></ul><ul><li>-Total Operating Expenses  (including both startup costs,...
Income Statement <ul><li>NET INCOME FROM OPERATIONS  </li></ul><ul><li>- Interest expense </li></ul><ul><li>= Net Income B...
Sample Income Statement <ul><li>For a sample of an Income Statement, click on the  Income Statement Sample  file in this l...
Balance Sheet <ul><li>A financial document that shows  </li></ul><ul><ul><li>Assets </li></ul></ul><ul><ul><li>Liabilities...
Balance Sheet <ul><li>Assets  (What a business owns) </li></ul><ul><li>Current Assets </li></ul><ul><ul><ul><li>Cash </li>...
Balance Sheet <ul><ul><li>Liabilities  (What a business owes) </li></ul></ul><ul><ul><ul><li>Current Liabilities </li></ul...
Balance Sheet <ul><li>Equation for the Balance Sheet </li></ul><ul><li>Assets = Liabilities + Owner’s Equity </li></ul><ul...
Balance Sheet <ul><li>For a sample of an Income Statement, click on the  Income Statement Sample  file in this lesson.  </...
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Preparing financial documents2

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  1. 1. Preparing Financial Documents The Income Statement & Balance Sheet
  2. 2. The Income Statement <ul><li>A financial statement that indicates how much money a business earns or loses during a period of time. </li></ul><ul><li>This document indicates how much profit or loss a business expects and is sometimes called a Profit and Loss Statement. </li></ul><ul><li>A new business should prepare an Income Statement monthly as a way to monitor whether making a profit or not. </li></ul>
  3. 3. Income Statement <ul><li>Parts of the Income Statement </li></ul><ul><ul><li>REVENUE FROM SALES </li></ul></ul><ul><ul><ul><li>-Cost of Goods Sold </li></ul></ul></ul><ul><ul><li>=GROSS PROFIT ON SALES </li></ul></ul><ul><ul><ul><li>-Operating Expenses </li></ul></ul></ul><ul><ul><li>=NET INCOME FROM OPERATIONS </li></ul></ul><ul><ul><ul><li>-Interest Expense from loans </li></ul></ul></ul><ul><ul><li>=NET INCOME BEFORE TAXES </li></ul></ul><ul><ul><ul><li>-Taxes owed </li></ul></ul></ul><ul><ul><li>=NET INCOME AFTER TAXES </li></ul></ul>
  4. 4. Income Statement <ul><li>Gross Sales (Amount of all sales for the period based on receipts) </li></ul><ul><li>-Returns and Allowances (Merchandise returned or adjustment in charges to customers) </li></ul><ul><li>=Revenue from Sales (Sales before cost of goods adjustment) </li></ul>Calculating Revenue from Sales
  5. 5. Income Statement <ul><li>=Net Sales </li></ul><ul><li>Beginning Inventory (Ending Inventory from last month) </li></ul><ul><li>-Purchases (New inventory purchased) </li></ul><ul><li> Total Goods Available for Sale </li></ul><ul><li>-Ending Inventory (Inventory left unsold) </li></ul><ul><li>=Total Cost of Goods Sold </li></ul><ul><li>Net Sales - Total Cost of Goods Sold </li></ul><ul><li>=GROSS PROFIT ON SALES </li></ul>Calculating Gross Profit on Sales
  6. 6. Income Statement <ul><li>GROSS PROFIT ON SALES </li></ul><ul><li>-Total Operating Expenses (including both startup costs, continuing costs, loan payments, etc.) </li></ul><ul><li>= NET INCOME FROM OPERATIONS </li></ul>Calculating Net Income from Operations
  7. 7. Income Statement <ul><li>NET INCOME FROM OPERATIONS </li></ul><ul><li>- Interest expense </li></ul><ul><li>= Net Income Before Taxes </li></ul><ul><li>- Federal Income Taxes </li></ul><ul><li>= Net Income After Taxes </li></ul>Calculating Net Income Before and After Taxes
  8. 8. Sample Income Statement <ul><li>For a sample of an Income Statement, click on the Income Statement Sample file in this lesson. </li></ul><ul><li>Use this as a guide when creating your Income Statement. </li></ul>
  9. 9. Balance Sheet <ul><li>A financial document that shows </li></ul><ul><ul><li>Assets </li></ul></ul><ul><ul><li>Liabilities </li></ul></ul><ul><ul><li>Capital (net worth) </li></ul></ul><ul><li>The balance sheet is based on the following equation: </li></ul><ul><li>Assets = Liabilities + Owner’s Equity </li></ul>
  10. 10. Balance Sheet <ul><li>Assets (What a business owns) </li></ul><ul><li>Current Assets </li></ul><ul><ul><ul><li>Cash </li></ul></ul></ul><ul><ul><ul><li>Accounts receivable (owed by others) </li></ul></ul></ul><ul><ul><ul><li>Notes receivable </li></ul></ul></ul><ul><ul><ul><li>Inventory </li></ul></ul></ul><ul><li>Fixed Assets </li></ul><ul><ul><ul><li>Equipment </li></ul></ul></ul><ul><ul><ul><li>Furniture </li></ul></ul></ul><ul><ul><ul><li>Vehicles </li></ul></ul></ul>
  11. 11. Balance Sheet <ul><ul><li>Liabilities (What a business owes) </li></ul></ul><ul><ul><ul><li>Current Liabilities </li></ul></ul></ul><ul><ul><ul><ul><li>Accounts payable (to other companies) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Notes payable (to banks, etc.) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Salaries </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Income taxes payable </li></ul></ul></ul></ul><ul><ul><ul><li>Long-term Liabilities </li></ul></ul></ul><ul><ul><ul><ul><li>Mortgage/Loans payable </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Notes payable </li></ul></ul></ul></ul>
  12. 12. Balance Sheet <ul><li>Equation for the Balance Sheet </li></ul><ul><li>Assets = Liabilities + Owner’s Equity </li></ul><ul><li>If you have calculated your balance sheet correctly, the above formula will be true. </li></ul>
  13. 13. Balance Sheet <ul><li>For a sample of an Income Statement, click on the Income Statement Sample file in this lesson. </li></ul><ul><li>Use this as a guide when creating your Income Statement. </li></ul>
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