Income Statementgr1 (2)

INCOME STATEMENT

GROUP 1:ADA, ELDEN JON W.CORDANO, HAZEL F.

MANALO, NATHANAEL JOHN L.REÑA,DUFF ZACHARY D.

OQUENDO, PAULINE

INCOME STATEMENT

• a.k.a Profit and Loss Statement

• a financial statement that measures a company's financial performance over a specific accounting period

• one of the three major in financial statements

• report of income, expenses and the resulting of profit or loss earned

INCOME STATEMENT

• is a key financial document in business

• used to track income and expenses

• important because it shows the profitability of a company during the time interval specified in its heading

COMPREHENSIVE INCOME• Net income +The period’s change in

accumulated other comprehensive income =Comprehensive income

• Unrealized holding gains and losses on available-for-sale marketable securities

• Changes to stockholders’ equity resulting from additional minimum pension liability adjustments

• Unrealized gains and losses from derivative instruments

PARTS OF INCOME STATEMENT

1.Operating Items Section

• revenue

• expenses

2.Non-Operating Items Section

• gains

• losses

Sales (or revenue) $XXXCost of goods sold XXX Gross profit XXXOperating expenses: Selling expenses XXX Administrative expenses XXX XXX Income from operations $XXX

Income from operations $XXXOther revenues and gains $XXXOther expenses and losses (XXX) XXX Income before income tax XXX

INCOME MAY PRESENTED INTO:

A. MULTI-STEP FORM

• Gross profit

• Operating income

• Income before taxes

• Net income

Net revenue $37,586

Cost of sales 16,742

Gross margin 20,844 Operating Expenses:

General & administrative 5,458$ Resaarch & development 5,722 Restructuring charges 710 11,890

Operating income 8,954 Interest income (expense) 488 Other gains (losses) (net) (1,756) (1,268)

Income before taxes 7,686 Provision for taxes 2,394

Net Income 5,292$

Multiple-Step CompanyIncome Statement

For the Year Ended December 31, 20XX

INCOME MAY PRESENTED INTO:

B. SINGLE-STEP FORM

• Total of all revenues and gains

• Less the total of all expenses and losses

Net revenue 37,586$ Interest income 488 Other income -

38,074 Costs and Expenses:

Cost of sales 16,742$ General & administrative 5,458 Research & development 5,722 Other losses 1,756

Restructuring charges 710 30,388

Income before taxes 7,686 Provision for taxes 2,394

Net income 5,292$

Single-Step CompanyIncome Statement

For the Year Ended December 31, 20XX

SIMPLE MULTI-STEP INCOME STATEMENT(separates operating income and expenses from non-operating items)

PROCESS:1.List the Sales Figure (gross revenue)

2.Deduct Cost of Goods Sold (all cost to make/buy the goods)

3.Calculate Gross Profit (Sales less Cost of Goods Sold)

4.Deduct Operating Expenses(Sales related/ Administration)

[e.g.,rent,salaries]

SIMPLE MULTI-STEP INCOME STATEMENT

5.Calculate Operating Income (Gross Profit Operating Income)

6.Add other Revenue (interest and gain)

7.Deduct Other Expenses (interest and loss)

8.Calculate Net Income

BASIC COMPONENTS OF INCOME STATEMENT

• Revenue

-includes income earned from the principal activities of an entity

• Cost of Sales

-represents the cost of goods sold or services rendered during an accounting period.

• Other Income

-consists of income earned from activities that are not related to the entity's main business

BASIC COMPONENTS OF INCOME STATEMENT

• Administrative Expenses

-comprise of costs relating to the management and support functions within an organization that are not directly involved in the production and supply of goods and services offered by the entity

• Other Expenses

-essentially a residual category in which any expenses that are not suitably classifiable elsewhere are included

• Finance Charges

-usually comprise of interest expense on loans and debentures

BASIC COMPONENTS OF INCOME STATEMENT

• Distribution of Cost

-includes expenses incurred in delivering goods from the business premises to customers• Income Tax

- is a tax on a person's income, emoluments, profits arising from property, practice of profession, conduct of trade or business or on the pertinent items

• Prior Period Comparatives

-is presented along side current period's financial results to facilitate comparison of performance over a period

COST OF GOODS SOLD

• were sold to produce revenue (cost of services in a service company)

Retailer

Beginning Inventory

+ Purchases

– Ending Inventory

= Cost of Goods Sold

Manufacturer

Beginning Inventory

+ Cost of Goods Manufactured

– Ending Inventory

= Cost of Goods Sold

NET SALES

• Revenue from the sale of principal goods or services sold to customers

Shown net of:

• Discounts

• Returns

• Allowances

Earnings Per Share (EPS)EPS calculation• [Net income less preferred dividends] ÷

[weighted average of common shares outstanding]

Reported on the face of the income statement

• Income before discontinued operations and extraordinary items

• Separately reported items

• Discontinued operations (net of tax)

• Extraordinary items (net of tax)

• Net income

Earnings Per Share:Income from continuing operations $X.XXDiscontinued operations (net of tax) X.XXExtraordinary items (net of tax) X.XX Net Income $X.XX

PURPOSE AND USE

• provides the basis for measuring performance of an entity over the course of an accounting period

• forms the basis of important financial evaluation of an entity when it is analysed in conjunction with information contained in other financial statements 

MOST COMPANIES WITH COMPLEXITY WITH THEIR

INCOME STATEMENTA. Revenues and Gains1. Revenues from primary activities 2. Revenues or income from secondary activities 3. Gains (e.g., gain on the sale of long-term assets, gain on lawsuits)

B. Expenses and Losses 1. Expenses involved in primary activities2. Expenses from secondary activities 3. Losses (e.g., loss on the sale of long-term assets, loss on lawsuits)

TEMPLATE (SAMPLE)

TEMPLATE (SAMPLE)

SAMPLE PROBLEM"On December 31, 2015, MEGATRON COMPANY, a Construction

Company, completed its first full year in business. During the year, it billed its customer DECEPTICON COMPANY P5,000,000.  The company incurred a total of 500 steel and 500 bags of cement.

MEGATRON has 50 construction workers which earns a wage of P75/hour. The workers are paid based on an eight hour working day. The company incurred a total of 100 days to finish the project.  Depreciation on equipment totalled P125,000. The company's marketing and selling expense is P25000.The total general and administrative expenses is

P150,000.  The company has incurred 10% interest on a debt of P50,000.  The cost per unit of steel is P150 and the bag of cement is P250.Assume a tax rate of 30%.  Prepare an income statement for

MEGATRON COMPANY."

SAMPLE PROBLEM

Revenue P5000000Less: Cost of Construction Direct Materials *STEEL (500xP150) P75000 *CEMENT (500xP250) 125000 P200000 Direct Labor 50X(75X8)X100 3000000 Overhead 125000 -3325000Gross Profit P1675000Less: Operating Expenses Marketing & Selling P25000 Gen. & Admin. Exp. 150000 -175000Operating Profit P1500000Less: Interest (P50000x10%) -5000Net Income P1495000Less: Taxes (P1495000X30%) -448500Net Income after Taxes P1046500

MEGATRON COMPANYINCOME STATEMENTDECEMBER 31, 2015

REFERENCES:

• http://www.investopedia.com/terms/i/incomestatement.asp\• http://www.wikihow.com/Write-an-Income-Statement• http://accounting-simplified.com/financial/statements/income-state

ment-profit-and-loss.html