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Let's take a moment to catch our breath in the discussion of the Income Statement, and look at all the information we've absorbed so far and the importance of the Income Statement in fulfilling the financial picture for the state of a business.
The Income Statement is a direct result of the information that is recorded in the journals and ledgers, and then transformed into concise, compiled revenue and expense figures. It is usually prepared directly from the monthly "closing of the books" and provides an accurate picture of the revenue and expense of the business for a specified period of time; usually a month, quarter or year. The Income statement is used by management within the company, but also by investors and creditors outside the company to evaluate profitability, performance and aid in the assessment of risk for the investor or creditor.
The Income Statement is divided into three parts: Total revenues, total expenses, and net income. The first section listed on the Income Statement is the Total Revenues reported for the particular period of time reported. Other than revenues generated from the normal operations of business, there are other sources of revenue that must also be included in the "Total Revenue" area. Rent and Interest Revenue would be included at this point. Next, you have the section known as "Total Expenses". This section includes all expenses incurred in the direct operation of the business. The most common forms of expense include wages, salaries, rents, utilities, insurance and supplies. Almost every business has an inclusion of variable expenses that is lumped into one category known as "miscellaneous expense"; these expenses are generally listed from largest to smallest, with miscellaneous always being the last expense reported, no matter how large or small. Finally, the entry known as "Net Income" is a result of the subtraction of the total expenses from the total revenues.
The Net Income that is reported on the Income Statement is then transferred to the Statement of Owner's Equity, and incorporated further into the information that is made available through the Financial Statements.
There are basically two formats for preparing the Income Statement: single-step and multiple-step. The single-step statement is a recording of two groups of information: income and expense and the net result. Expenses are deducted from revenues, and no separation of operating activities or expenses is provided. The single-step method does not tie individual contributions to the area responsible for the contribution. In this way, it is as inconclusive as the direct format for the Statement of Cash Flows when it comes to accountability.
The multiple-step method, although a bit more complex, provides the more useful information simply because it separates the operating and non-operating activities and classifies revenue and expense accordingly. The end result is a better comparison of performance and ratio to ratio computations of the company's finances.
Analysts, investors, stockholders, potential investors and lenders use these reports in order to assess the financial health of a business. A sample Income Statement was provided in the first article in this series. The importance of this report and the ability to accurately read and analyze the information is invaluable to an accountant. So, take the time to become familiar with this report, as well as the other 3 that complete the Financial Statement set.
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Are the income a balance sheet account?
Income is an income statement account and shown in income statement and not a balance sheet account.
How income statement affect balancesheet?
Income statement and balance sheet are both related to each other as transactions effect income statement and balance sheet as well and net income or loss from income statement is also part of balance sheet.
Does mortgage payable post to the income statement or balance sheet?
Mortgage payable is liability so it is part of balance sheet and not part of income statement.
What goes on income statement and what goes on balance sheet?
expenditures and revenue go to income statement while assets, liabilities and capital go to the balance sheet.
Does commission have a balance sheet or income statement account?
If commission is already received or paid then it is income statement item, but if it is still receivable or payable then it is balance sheet item, simple commission is a income statement item
Are the income a balance sheet account?
Income is an income statement account and shown in income statement and not a balance sheet account.
How income statement affect balancesheet?
Income statement and balance sheet are both related to each other as transactions effect income statement and balance sheet as well and net income or loss from income statement is also part of balance sheet.
Are accounts payable on the income statement and balance sheet?
yes accounts are payable on the income statement and balance sheet.
Is interest on fixed deposit located on income statement or balance sheet?
both.. balance sheet under liquid asset..income statement under inflow/income..
Where does interest go on balance sheet?
Interest is part of income statement and shown in income statement and not part of balance sheet.
Are exploration expenses located on a balance sheet or income statement?
balance sheet
Where does an escrow payable appear on a balance sheet or a income statement?
balance sheet
Does mortgage payable post to the income statement or balance sheet?
Mortgage payable is liability so it is part of balance sheet and not part of income statement.
Is net income recorded on the worksheet in the Income Statement Debit column and the Balance Sheet Credit column?
debit column of the income statement and the credit column of the balance sheet.
Is earnings per share found on income statement or balance sheet?
Earning per share information is shown in income statement and not shown in balance sheet of business.
What financial statement does merchandise inventory at end of period go on?
Closing merchandise inventory belongs on both the income statement and the balance sheet. On the income statement, it is included under Cost of Goods Sold; on the balance sheet it is categorised under Current Assets.
Where does stationary go on a balance sheet in business studies?
Stationery, as an accounting item, does not appear on a business Balance Sheet. The Balance Sheet is reserved for assets and liabilities. The Income Statement reflects income and expenses and because Stationery is an expense item it will appear on the Income Statement and not the Balance Sheet.
