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FINANCIALACCOUNTING–THEINCOMESTATEMENT
Oftenisconsideredtobethemostimportantfinancialstatement.Thebasicformulais:
NetSales(Revenue) 100,000
COGS 50,000
GrossProfit 50,000
OperatingExpense(Selling,Administration) 10,000
OperatingIncome 40,000
+or–otherincomeorexpenses -10,000
Incomebeforeincometaxes 30,000
Incometaxes 10,000
NetIncome 20,000
EarningsPerShare(10,000shares) 2
ElementsoftheIncomeStatement
NetSales(Revenues)
Moneyreceivedfromsellinggoodsorservicestocustomers
Salesareshownnetofanysalesdiscounts,returnsandallowancesaretakenout.
Itismoneyreceivedminusreturns
COGS(CostofGoodsSold)
Whatitcosttoproducethegoodsorservices
Retail=beginninginventory+purchases–endinginventory.10BI+50P–40EI=20COGS
Manufacturing=10BI+costsofgoodsmanufactured–endinginventory.Sameasb)butsincetheymakegoodsratherthanbuyforresalepurchasesisreplacewithcostsofgoodsmanufactured.
Service=costofserviceswithnobeginningorendinginventory
OtherOperatingIncome(OperatingRevenue)
Theseincluderoyalties,licensesandotherrevenuereceivedotherfromthebasicoperationofthebusiness.
OperatingExpenses
AdministrativeexpensesNOTrelatedtoproducingtheproductorservice.Thecostofselling,advertising,telephonesetc.
OtherIncomeorexpense–notrelatedtothebusinessfunction
SpecialIncomeStatements
Wearetryingtogetapictureofacompany’sfinancialstatusinagiventime.Sometimessomethingrarehappensduringthattimethatdoesnotgiveanaccuratepictureoftheoverallfinancialconditionofthecompany.
IgiveyouathousandRMBbecauseyouwonthebeststudentcontest.Youputitinyourwallet.Yougotobuyaneggwhichcosts8Maoandthesellerseseallthatmoneyinyourwallet.Doesthatmeanyouarerich?
Non-reoccurringeventsdistorttherealsituationsoareaccountedforseparately.Theyinclude:
Unusualorinfrequentitemsarediscloseseparately
Againorlossonthesaleofsecurities
Write-downofsecurities
Write-downofinventory–wanttobuymyfirstcellphone?
EquityEarningsfromnon-consolidatedsubsidiaries
Consolidated=toreporttogether
Acompanyreportstheincomeo
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