1. LESSON 7-1 Preparing an Income Statement
4/23/2017
LESSON 7-1
Preparing an Income Statement

2. Accounting Concepts Adequate Disclosure: Going Concern: Stakeholders:
When financial statements contain all information necessary to understand a business’s financial situation.
Can you make a good decision if you don’t know if you have a net loss or net income?
Going Concern:
When financial statements are prepared with the expectation that a business will remain in operation indefinitely
Stakeholders:
any person or group that will be affected by an action

3. Activity: Turn to page 181 and Read Making Ethical Decisions
Think about TechKnow Consulting (sells services)
Who are their stakeholders?
Enter your answer on the bottom of page 143 of your Workbook
Owners
Employees
Suppliers (Accounts Payables)
Customers
Society/Communities
Ex: PG&E – hexavalent chromium to fight corrosion in cooling towers

4. Reporting Financial Information
Why do companies report financial information?
Report the financial condition of the company
Needed to make good business decisions
Needed to make ethical decisions
What two types of financial statements are used?
Income Statements
Balance Sheets
When are they prepared?
At the end of the fiscal period
Either yearly or monthly (our example is using a 1 month)
When does the fiscal period end?

5. An Income Statement
Reports financial information for a specified period of time
Entire Fiscal period (“For Month Ended…”, or “For Year ended..”)
Shows how we did as a business for the entire year/month
Reports Financial progress
Do we have a Net Income or Net Loss
What two types of accounts are on the Income Statement?
Revenue (Sales)
Expenses (costs to operate the business)

6. Completing an Income Statement Form
Information needed to complete the Income Statement:
Account titles from the Title column of the Work Sheet
Balances from the Income Statement columns of the Worksheet
Three Sections of an Income Statement:
Form Heading (Who, What, When)
Division Titles
Revenue
Expenses
Net Income or Net Loss
Percentage of Sales

7. Income Statement

8. DATA OBTAINED FROM WORK SHEET

9. Income Statement 4. Record Total Expenses
% of
Sales
4. Record Total Expenses
Enter “Total Expenses” on next line below expenses
Sum Total Expenses and enter value in middle amount column
2. List Revenue Accounts:
Enter division title
Indent Account Titles
Enter balance in middle column
Create the Heading Section
Who, What, When
3. Prepare Expense Accounts:
Enter division title
Indent Account Titles
Balances in first column
Single Rule after last
expense account

10. For Month Ended November 30, 2010
Lawn Pro Company 
 Income Statement
 For Month Ended November 30, 2010
% of
Sales
 Revenue:
 Sales  3 8 00
 Expenses:
 Advertising Expense  2
 Insurance Expense  1 5
 Miscellaneous Exp.
 Rent Expense  6
 Supplies Expense  5
 Utilities Expense 9
 Total Expenses
6. Report Net Income/Net Loss
Subtract total expenses from total revenue.
Double rule below both amount columns
5. Report Net Income/Net Loss
Single rule below Total Expenses balance
Enter “Net Income” division title on the Next blank line (not indented)

11. Component Percentages
Component percentage: the percentage relationship between one financial statement item and the total that includes that item
Managers analyze relationships between expenses and revenue
Assist with making decisions about future operations
Two components: total expenses and net income/loss
Tells the percent of revenue that is expenses
Tells the percent of revenue that is net income/loss

12. For Month Ended November 30, 2010
LawnPro Company 
 Income Statement
 For Month Ended November 30, 2010
% of
Sales
 Revenue:
 Sales  3 8 00
 Expenses:
 Advertising Expense  2
 Insurance Expense  1 5
 Miscellaneous Exp.
 Rent Expense  6
 Supplies Expense  5
 Utilities Expense 9
 Total Expenses
 Net Income: 1  1
COMPONENT PERCENTAGE
1. Component % of Revenue:
Sales = 100% of Revenue
2. Component % of Expense:
Divide total Expenses by Total Revenue
An acceptable % for expenses is not greater than 55%
Convert to a Percentage
Round to one decimal place
3. Component % of Net Income
Divide Net Income by Total Revenue
An acceptable % for Net Income is not less than 45%
Convert to a Percentage
Round to one decimal place
What is the % of Expenses?
49.7%
Is this acceptable?
Yes
What is the % of Net Income?
50.3%

13. INCOME STATEMENT WITH TWO SOURCES OF REVENUE AND A NET LOSS

14. TERMS REVIEW
stakeholders
component percentage

15. Assignment
WTG 7-1
OYO 7-1