The income statement reports revenue and expenses for a specific period of time, with revenue listed first followed by expenses. It can take the natural form, with expenses classified by nature, or the functional form, with expenses classified by function. The document also discusses accounting concepts like the revenue recognition principle, matching principle, accrual basis of accounting, consistency, conservatism, and disclosure principle which govern how transactions and financial performance are measured and reported.

1. 1 8 J U N E 2 0 1 3
Measuring and Reporting
Financial Performance

2. Income Statement
 Reports the revenue and expenses for a specific
period of time
 Revenue is listed first, followed by expenses
 Investment and withdrawal transactions between the
owner and the business are not included in the
measurement of profit

3. Nature and Forms of Income Statement
 Natural Form – one where expenses are classified
according to the nature of expense
 Functional form – one where expenses are classified
according to the function of expense

4. Nature and Forms of Income Statement
Income
Service Income 50,800.00
Interest Income 5,000.00
Rent Income 12,000.00
Total Revenue 67,800.00
Expenses
Supplies Expense 5,000.00
Salaries Expense 4,600.00
Utilities Expense 7,820.00
Depreciation Expense 3,280.00
Interest Expense 400.00
Total Expense 21,100.00
Profit 46,700.00
KYE CO.
Income Statement
For the period December 31, 20X9

5. Nature and Forms of Income Statement
Net Sales 645,845.00
Less: Cost of Goods Sold 458,882.00
Gross Profit 186,963.00
Add: Other Income 2,122.00
Less: Other Expenses
Distribution Costs 20,725.00
General and Administrative Costs 95,494.00
Finance Costs 5,485.00
Net Income (Loss) 67,381.00
RYE CO.
Income Statement
For the period December 31, 20X9

6.  Time period (Periodicity) – To provide timely
information, accountants have divided the economic
life of a business into artificial time periods.
 Fiscal year – a period of any twelve consecutive months
 Calendar year – an annual period ending on December 31
 Interim period – a period of less than a year
Accounting Concepts and Principles

7.  Revenue recognition principle (Income
recognition) – dictates that revenue should be
recognised in the accounting period in which it is
earned.
Accounting Concepts and Principles

8.  Matching principle (Expense recognition) –
dictates that expenses be matched with revenue in
the period in which efforts are made to generate
revenue. “Let the expense follow the revenue.”
Accounting Concepts and Principles

9.  Accrual basis of accounting – the effects of
transactions and other events are recognised when
they occur and they are recorded in the accounting
records and reported in the financial statements of
the period to which they relate.
Accounting Concepts and Principles

10.  Consistency – An entity uses the same accounting
principles and methods from year to year.
Accounting Concepts and Principles

11.  Conservatism (Prudence) – This is the inclusion
of a degree of caution in the exercise of judgment
needed in making the estimates required under
conditions of uncertainty, such that assets or income
are not overstated and liabilities or expenses are not
understated.
Accounting Concepts and Principles

12.  Disclosure (Full disclosure principle) –
requires that circumstances and events that make a
difference to financial statement users be disclosed.
Accounting Concepts and Principles

13. Basic Accounting Equation
A = L + C
ASSETS = LIABILITIES + OWNER’S EQUITY

14. Accounting Equation
 Basic Accounting Equation
ASSETS = LIABILITIES + OWNER’S
EQUITY
 Expanded Basis Accounting Equation
ASSETS = LIABILITIES + OWNER’S CAPITAL –
OWNER’S DRAWINGS + REVENUE – EXPENSES