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Will You Add? - Accounting - Explaining The Income Statement
As a busy executive, you face some extremely difficult challenges like creating and dominating new markets or finding and keeping the best people. But then, like many executives, do you find yourself spending too much time solving everyday problems (that only you can solve, right?), which prevent you from growing your ideal business? Most managers find themselves spending 80% or more of their time “reacting” to business events and very little time in preventing those same events from occurring again. If this sounds familiar then you may be making some of these management mistakes: 1. Do you
Onyx marble has excellent uses. Onyx marble is used most often as a fireplace surround; bar top, or as a small island as it transmits light. It is also used as cabochons and for building material. Careful consideration is required when using onyx marble at your residential area. Think of your own lifestyle and conditions before purchase onyx as a countertop surface or a bar top.Other uses further include wall cladding, light duty home floors, sinks base, and tables. Onyx could also used for novelty items such as vases, urns, wine goblets, lamps and bowls. It really works wonderful where you could accen
The nature of the income statement is that it is a reflection of operations over a period of time, i.e., “for the month ended June 30, 2006”, or “for the year ended December 31, 2006”. This is different from the balance sheet, which reflects a certain point in time. Income statements contain what is known as “temporary” accounts and the balance sheet contains “permanent” accounts. Temporary accounts such as sales revenues and expenses are “closed out”, net income/loss is determined and this net amount ends up in an owner’s equity account. The accounts are closed at the end of one period, reopened and reused for the next period.
The income statement is revenues less cost of goods sold, less expenses, equals the net income or loss. Revenues are the sales of items normally sold in your business; what are you selling? Do you sell goods? Do you sell services? It is the selling price times the number of items sold. Sales are usually shown as net sales and some adjustment to sales would include sales discounts, sales returns and allowances.
If the business sells goods, the next part of the income statement would be the cost of goods sold section. If the business sells services, it won’t have this section. Because this is such a large part of expenses for a retail establishment, while it is an expense, it is broken out separately from other expenses. The business will need to know how much inventory it started with and how much inventory it had during the end of the period. Additionally, it will need to know how much inventory was purchased during the period. There are a number of ways to value inventory, such as Fifo (first in, first out), Lifo (last in, first out), average cost, specific identification, etc. Since we are taking a high-level glance at the income statement, it is just important at this time to note that, because of subjectivity of inventory methods, this can be more of an art than a science. Beginning inventory plus goods purchased equals goods available for sale; goods available for sale minus ending inventory will give you the cost of goods sold.
Expenses are outflows of cash necessary to the operation of the business. Some expenses are easily identified, such as rent or mortgage, utilities, office salaries, supplies, etc. and these are referred to as selling and administrative expenses. Selling expenses are costs related to selling goods, such as the salesperson’s salaries, shipping, freight, advertising, etc. Research and development costs are also valid expenses. If you own the building, vehicles, or equipment, there are depreciation costs. That just means if you own an asset that lasts for a couple of years, you can write off part of the cost of that asset as a depreciation expense for a certain number of years. Like inventory costs, there are a number of
My husband's car has had a few mechanical problems this year. It's a few years old and is at that stage where little things need replacing. In fact we found it's got to the point where he needs to buy a new one.Anyhow it reminded me of what happened earlier in the year when it was taken to our local mechanic for another repair job . At the time of pick up, Robert the mechanic said he hadn't prepared the bill and will do so later and let us know how much it would be. After 3 weeks, we still hadn't received the invoice and my husband suggested I chase it up and I said 'no'. It's not up to me to foll
The income statement is revenues less cost of goods sold, less expenses, equals the net income or loss. Revenues are the sales of items normally sold in your business; what are you selling? Do you sell goods? Do you sell services? It is the selling price times the number of items sold. Sales are usually shown as net sales and some adjustment to sales would include sales discounts, sales returns and allowances.
If the business sells goods, the next part of the income statement would be the cost of goods sold section. If the business sells services, it won’t have this section. Because this is such a large part of expenses for a retail establishment, while it is an expense, it is broken out separately from other expenses. The business will need to know how much inventory it started with and how much inventory it had during the end of the period. Additionally, it will need to know how much inventory was purchased during the period. There are a number of ways to value inventory, such as Fifo (first in, first out), Lifo (last in, first out), average cost, specific identification, etc. Since we are taking a high-level glance at the income statement, it is just important at this time to note that, because of subjectivity of inventory methods, this can be more of an art than a science. Beginning inventory plus goods purchased equals goods available for sale; goods available for sale minus ending inventory will give you the cost of goods sold.
Expenses are outflows of cash necessary to the operation of the business. Some expenses are easily identified, such as rent or mortgage, utilities, office salaries, supplies, etc. and these are referred to as selling and administrative expenses. Selling expenses are costs related to selling goods, such as the salesperson’s salaries, shipping, freight, advertising, etc. Research and development costs are also valid expenses. If you own the building, vehicles, or equipment, there are depreciation costs. That just means if you own an asset that lasts for a couple of years, you can write off part of the cost of that asset as a depreciation expense for a certain number of years. Like inventory costs, there are a number o
Ghost Hunting can be very fun and yet at times it can be one of the most terrifying things you will probably ever do in your life.The following are just a few of the things folks have encountered during ghost hunting or paranormal investigations:1. Smells: These smells can seem to come from no where, and develop instantly and disappear just as fast. The smells are often putrid like rotted meat, or like fresh bowel movements, and are very overpowering at times.2. Apparitions: Some spirits appear as barely visible forms, while some become as solid and normal looking as a living p
If the business sells goods, the next part of the income statement would be the cost of goods sold section. If the business sells services, it won’t have this section. Because this is such a large part of expenses for a retail establishment, while it is an expense, it is broken out separately from other expenses. The business will need to know how much inventory it started with and how much inventory it had during the end of the period. Additionally, it will need to know how much inventory was purchased during the period. There are a number of ways to value inventory, such as Fifo (first in, first out), Lifo (last in, first out), average cost, specific identification, etc. Since we are taking a high-level glance at the income statement, it is just important at this time to note that, because of subjectivity of inventory methods, this can be more of an art than a science. Beginning inventory plus goods purchased equals goods available for sale; goods available for sale minus ending inventory will give you the cost of goods sold.
Expenses are outflows of cash necessary to the operation of the business. Some expenses are easily identified, such as rent or mortgage, utilities, office salaries, supplies, etc. and these are referred to as selling and administrative expenses. Selling expenses are costs related to selling goods, such as the salesperson’s salaries, shipping, freight, advertising, etc. Research and development costs are also valid expenses. If you own the building, vehicles, or equipment, there are depreciation costs. That just means if you own an asset that lasts for a couple of years, you can write off part of the cost of that asset as a depreciation expense for a certain number of years. Like inventory costs, there are a number o
One day at the office I was taken quite aback when I attempted to open an Excel spreadsheet I'd created and was prompted with the message: File in Use. Open as a read-only file? File in use? What was that all about? It was, after all, my file. Who else would be using it?The answer to that last question was, of course, anyone. Anyone at all could be using it. I worked in a company with 200+ employees and most of our documents were saved on drives with shared access. My file, essentially, was available to anyone in the entire company, from upper management to the receptionist, on a whim.ow much inventory was purchased during the period. There are a number of ways to value inventory, such as Fifo (first in, first out), Lifo (last in, first out), average cost, specific identification, etc. Since we are taking a high-level glance at the income statement, it is just important at this time to note that, because of subjectivity of inventory methods, this can be more of an art than a science. Beginning inventory plus goods purchased equals goods available for sale; goods available for sale minus ending inventory will give you the cost of goods sold.
Expenses are outflows of cash necessary to the operation of the business. Some expenses are easily identified, such as rent or mortgage, utilities, office salaries, supplies, etc. and these are referred to as selling and administrative expenses. Selling expenses are costs related to selling goods, such as the salesperson’s salaries, shipping, freight, advertising, etc. Research and development costs are also valid expenses. If you own the building, vehicles, or equipment, there are depreciation costs. That just means if you own an asset that lasts for a couple of years, you can write off part of the cost of that asset as a depreciation expense for a certain number of years. Like inventory costs, there are a number o
Let's face it, companies these days are always losing equipment to theft and misplacement all because big brother isn't watching close enough. Keeping track of your company's assets should give you piece of mind and your employees some accountability. Just by putting a small asset label on their laptop or expensive piece of equipment, can sometimes mean the difference if that item makes it back or not.Asset labels come in all sizes, shapes and material types. There are companies that will print custom asset labels with your logo, barcode and specific number sequence. This can be expensive with set
To determine net income or loss, you take revenues minus cost of goods sold minus expenses. If this number is positive, it is net income. If this number is negative, it is net loss. This amount is closed to an equity account, such as an owner’s capital account for a sole proprietorship or stockholder’s equity for a corporation.
Expenses and/or income outside the realm of usual business operations should be included in its own separate section. For example, the business is a shoe store and they sell one of their buildings or part of their vacant lot, which creates an inflow of money. This is not what you would expect a shoe store to do. In order to make income statements comparable by year, this special income will need to be shown in a separate section above net income.
So, at a high level we’ve looked at the income statement, defined the components of revenue, cost of goods sold, expenses and net income. We’ve pointed out areas such as inventory valuation and depreciation where different methods can be used which will determine different financial amounts. Businesses need to select their methods carefully and stick with them for consistency. It is not totally impossible to change these valuation methods, but it would require special disclosures, etc. Once we understand the basics of the income statement, it will help us understand income statements from a number of different companies, regardless of the nature of their business.
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