11.1 The Income Statement
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11.1 The Income Statement
- 2. © Michael Allison, Trinity Grammar School. Author’s permission required for external use The Accounting System… 11.1 THE INCOME STATEMENT Balance Sheet Income Statement Trial Balance 4. Prepare a Trial Balance 5. Prepare Financial Reports 3. Enter transactions in General Ledger General Ledger Ledger Ledger Ledger Ledger 1. Transactions occur Transaction #1 Transaction #2 Transaction #3 Transaction #4 Transaction #5 Transaction #6 Transaction #7 Transaction #8 Special Journals 2. Special Journals Cash Receipts Journal Cash Payments Journal Sales Journal Purchase Journal
- 3. © Michael Allison, Trinity Grammar School. Author’s permission required for external use At the end of each reporting period all Revenues and Expenses are closed off to the Profit & Loss Summary account… Closing The balance of the account is reset to zero at the end of the period Sales [R] 30/6 Cash at Bank 35000 30/6 Profit and Loss Summary 53000 30/6 Debtors Control 18000 53000 53000 Revenue Expenses Sales [R] 30/6 Cash at Bank 35000 30/6 Profit and Loss Summary 53000 30/6 Debtors Control 18000 53000 53000 Sales [R] 30/6 Cash at Bank 35000 30/6 Profit and Loss Summary 53000 30/6 Debtors Control 18000 53000 53000 Sales [R] 30/6 Cash at Bank 35000 30/6 Profit and Loss Summary 53000 30/6 Debtors Control 18000 53000 53000 11.1 THE INCOME STATEMENT
- 4. © Michael Allison, Trinity Grammar School. Author’s permission required for external use Revenues and Expenses are closed off so that: 1. Net profit for this period can be determined 2. The net profit for next period can be determined by resetting the balances to zero 11.1 THE INCOME STATEMENT
- 5. © Michael Allison, Trinity Grammar School. Author’s permission required for external use The Profit and Loss Summary account enables the firm to determine whether it has made either a… Profit and Loss Summary [OE] 30/6 Expense a/c’s 5100 30/6 Revenue a/c’s 9400 9400 9400 Net Profit Net Loss Revenue - Expenses = Net Profit (Loss) Profit and Loss Summary [OE] 30/6 Expense a/c’s 5100 30/6 Revenue a/c’s 9400 9400 9400 9400 Profit and Loss Summary [OE] 30/6 Expense a/c’s 5100 30/6 Revenue a/c’s 9400 9400 9400 5100 Profit and Loss Summary [OE] 30/6 Expense a/c’s 5100 30/6 Revenue a/c’s 9400 30/6 Capital 4300 9400 9400 4300 Profit and Loss Summary [OE] 30/6 Expense a/c’s 7800 30/6 Revenue a/c’s 5900 7800 7800 Revenue - Expenses = Net Profit (Loss) Profit and Loss Summary [OE] 30/6 Expense a/c’s 7800 30/6 Revenue a/c’s 5900 7800 7800 5900 Profit and Loss Summary [OE] 30/6 Expense a/c’s 7800 30/6 Revenue a/c’s 5900 7800 7800 7800 Profit and Loss Summary [OE] 30/6 Expense a/c’s 7800 30/6 Revenue a/c’s 5900 30/6 Capital 1900 7800 7800 (1900) 11.1 THE INCOME STATEMENT
- 6. © Michael Allison, Trinity Grammar School. Author’s permission required for external use While the Profit and Loss Summary account shows whether the firm made a Net Profit or a Net Loss, it is not easy to understand Profit and Loss Summary [OE] 30 Jun Expense accounts 5100 30 Jun Revenue accounts 9400 30 Jun Capital 4300 9400 9400 Information is understandable if: • Users can comprehend its meaning easily (assuming a reasonable knowledge of business and economics) 11.1 THE INCOME STATEMENT
- 7. © Michael Allison, Trinity Grammar School. Author’s permission required for external use To someone who isn’t an accountant or familiar with this account, the firm’s profit is not easily understandable or easy to calculate A report is needed to set out this information in a more understandable manner This report is called the… Profit and Loss Summary [OE] 30 Jun Expense accounts 5100 30 Jun Revenue accounts 9400 30 Jun Capital 4300 9400 9400 Income Statement 11.1 THE INCOME STATEMENT
- 8. © Michael Allison, Trinity Grammar School. Author’s permission required for external use Profit and Loss Summary [OE] 30 Jun Expense accounts 5100 30 Jun Revenue accounts 9400 30 Jun Capital 4300 9400 9400 Income Statement for the month ended 30 June 2015 $ $ Revenue Cash sales 6000 Credit sales 3400 9400 less Expenses Wages 2000 Rent 3000 Insurance 100 5100 Net Profit 4300 Income Statement for the month ended 30 June 2015 $ $ Revenue Cash sales 6000 Credit sales 3400 9400 less Expenses Wages 2000 Rent 3000 Insurance 100 5100 Net Profit 4300 Profit and Loss Summary [OE] 30 Jun Expense accounts 5100 30 Jun Revenue accounts 9400 30 Jun Capital 4300 9400 9400 Income Statement for the month ended 30 June 2015 $ $ Revenue Cash sales 6000 Credit sales 3400 9400 less Expenses Wages 2000 Rent 3000 Insurance 100 5100 Net Profit 4300 Profit and Loss Summary [OE] 30 Jun Expense accounts 5100 30 Jun Revenue accounts 9400 30 Jun Capital 4300 9400 9400 Income Statement for the month ended 30 June 2015 $ $ Revenue Cash sales 6000 Credit sales 3400 9400 less Expenses Wages 2000 Rent 3000 Insurance 100 5100 Net Profit 4300 Profit and Loss Summary [OE] 30 Jun Expense accounts 5100 30 Jun Revenue accounts 9400 30 Jun Capital 4300 9400 9400 11.1 THE INCOME STATEMENT
- 9. © Michael Allison, Trinity Grammar School. Author’s permission required for external use TASK In-class Homework SQ1 X SQ2 X