2. FACTORS AFFECTING A COMPANY’S INCOME STATEMENT

3. Copyright © Texas Education Agency, 2011. All rights reserved. 2 “Copyright and Terms of Service Copyright © Texas Education Agency. The materials found on this website are copyrighted © and trademarked ™ as the property of the Texas Education Agency and may not be reproduced without the express written permission of the Texas Education Agency, except under the following conditions: 1)Texas public school districts, charter schools, and Education Service Centers may reproduce and use copies of the Materials and Related Materials for the districts’ and schools’ educational use without obtaining permission from the Texas Education Agency; 2) Residents of the state of Texas may reproduce and use copies of the Materials and Related Materials for individual personal use only without obtaining written permission of the Texas Education Agency; 3) Any portion reproduced must be reproduced in its entirety and remain unedited, unaltered and unchanged in any way; 4) No monetary charge can be made for the reproduced materials or any document containing them; however, a reasonable charge to cover only the cost of reproduction and distribution may be charged. Private entities or persons located in Texas that are not Texas public school districts or Texas charter schools or any entity, whether public or private, educational or non-educational, located outside the state of Texas MUST obtain written approval from the Texas Education Agency and will be required to enter into a license agreement that may involve the payment of a licensing fee or a royalty fee.

4. Copyright © Texas Education Agency, 2011. All rights reserved. 3 Getting Started Let’s understand factors of production through an engaging activity. Go to The four factors of production.The four factors of production Let’s understand factors of production through an engaging activity. Go to The four factors of production.The four factors of production

5. Copyright © Texas Education Agency, 2011. All rights reserved. 4 Name those FACTORS!

6. Copyright © Texas Education Agency, 2011. All rights reserved. 5 Natural Resources Trees Animals Water Plants Minerals Light Wind Natural ResourcesHuman Resources Capital ResourcesHuman Resources Factors of Production Raw materials found in nature:

7. Copyright © Texas Education Agency, 2011. All rights reserved. 6 Human Resources Natural ResourcesHuman Resources Capital ResourcesHuman Resources Factors of Production Knowledge, efforts, and skills of people working in various roles: Cashier Doctor Chef Banker Engineer Manager Teacher Researcher Paramedic Welder Governor Maid Custodian Accountant Police Architect Writer Painter

8. Copyright © Texas Education Agency, 2011. All rights reserved. 7 Capital Resources Natural ResourcesHuman Resources Capital ResourcesHuman Resources Factors of Production Things used to produce goods and services: Building Factory Warehouse Materials Fabric Lumber Equipment Sewing Machine Delivery Truck

9. Copyright © Texas Education Agency, 2011. All rights reserved. 8 Entrepreneurial Resources Natural ResourcesHuman Resources Capital ResourcesHuman Resources Factors of Production Required to meet the changing wants and needs of people. Entrepreneurial resources identify new processes, develop new resources, and create new technologies.

10. Copyright © Texas Education Agency, 2011. All rights reserved. 9 Organize Your Thoughts NATURAL List Natural Resources HUMAN List Labor Forces CAPITAL List Buildings, Materials, and Equipment ENTREPRENERIAL List Creative Resources Natural ResourcesHuman Resources Capital ResourcesHuman Resources Factors of Production

11. Copyright © Texas Education Agency, 2011. All rights reserved. 10 What’s in an Income Statement? Revenue Less: Cost of Sales Gross Profit Less: Expenses Net Income Learn about the income statement through visiting the U. S. Securities and Exchange Commission.U. S. Securities and Exchange Commission Learn about the income statement through visiting the U. S. Securities and Exchange Commission.U. S. Securities and Exchange Commission

12. Copyright © Texas Education Agency, 2011. All rights reserved. 11 Income Statement Format (Sample) Revenue Cost of Sales Gross Profit (Revenue less Cost of Sales) Operating Expenses (i.e., Salaries, Rent, Depreciation) Income From Operations (Gross Profit less Expenses) Less: Interest Expense (or Add Interest Income) Net Income Before Tax Income Tax Net Income After Tax Revenue Less: Cost of Sales Gross Profit Less: Expenses Net Income

13. Copyright © Texas Education Agency, 2011. All rights reserved. 12 Calculating Net Income and Net Loss REVENUE less EXPENSES equals… If REVENUE > EXPENSES, then NET INCOME If REVENUE < EXPENSES, then NET LOSS Revenue Less: Cost of Sales Gross Profit Less: Expenses Net Income

14. Copyright © Texas Education Agency, 2011. All rights reserved. 13 Tying it all together Natural ResourcesHuman Resources Capital ResourcesHuman Resources Factors of Production Revenue Less: Cost of Sales Gross Profit Less: Expenses Net Income How do you utilize the factors of production to improve a business’ profits, revenues, and expenses?

15. Copyright © Texas Education Agency, 2011. All rights reserved. 14 Increasing Revenue Natural ResourcesHuman Resources Capital ResourcesHuman Resources Factors of Production Revenue Less: Cost of Sales Gross Profit Less: Expenses Net Income Increase price Increase productivity Increase promotion

16. Copyright © Texas Education Agency, 2011. All rights reserved. 15 Decreasing Cost of Sales Natural ResourcesHuman Resources Capital ResourcesHuman Resources Factors of Production Revenue Less: Cost of Sales Gross Profit Less: Expenses Net Income Decrease cost inputs Increase productivity of direct labor Decrease waste

17. Copyright © Texas Education Agency, 2011. All rights reserved. 16 Decreasing Expenses Natural ResourcesHuman Resources Capital ResourcesHuman Resources Factors of Production Revenue Less: Cost of Sales Gross Profit Less: Expenses Net Income Reduce variable costs Evaluate fixed costs Eliminate wasteful spending

18. Copyright © Texas Education Agency, 2011. All rights reserved. 17 Independent Activity REVENUECOST OF SALESEXPENSES

19. Copyright © Texas Education Agency, 2011. All rights reserved. 18 Evaluation

20. 19 Evaluation  Copyright © Texas Education Agency, 2011. All rights reserved.

21. Copyright © Texas Education Agency, 2011. All rights reserved. 20 Resources Natural ResourcesHuman Resources Capital ResourcesHuman Resources Factors of Production Revenue Less: Cost of Sales Gross Profit Less: Expenses Net Income Brown, Betty J., Clow, John E., & Brown, Kenneth W. (1995). Introduction to Business. New York: Glencoe/Mac-Graw Hill. ________ (2007). Beginner’s Guide to Financial Statements. Retrieved from U.S. Securities and Exchange Commission Web site: http://www.sec.gov/investor/pubs/begfinstmtguide.htm Penn, Pace (2010, February 13). The four factors of production. Retrieved from University of North Carolina at Chapel Hill, LEARN NC Web site: http://www.learnnc.org/lp/pages/3760 http://www.learnnc.org/lp/pages/3760 Rubistar. (2000 – 2008). Retrieved from ALTEC of University of Kansas Web site: http://rubistar.4teachers.org/index.phphttp://rubistar.4teachers.org/index.php