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Income Statement (Ratios to memorize (Net Profit Margin = Net Income / Net…
Income Statement
Ratios to memorize
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Gross margin ($) = Net sales - cost of goods sold
OR (%) = Gross profit / Net Sales i.e. (Net Sales - cost of goods sold / Net Sales)
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Formatting
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Calculate Totals for:
- Revenues
- Expenses
:!:Use single line before and after each total
After total expenses, calculate Revenues - Expenses to get Operating Income. Subtract Income tax expense from that to get Net Income
Net Sales Revenues
(CoGs)
Gross Profit
(Operating Expenses)
Operating Income
±Other income (incl. gain/loss on sale of business segment, interest expenses)
Pretax Income
(Income Tax Expense)
Income from Continuing Operations
±Discontinued operations and Extraordinary events, net of taxes
Net Income (Net Profit)
Net Sales - cost of goods sold = Gross Profit
Gross Profit - Operating Expenses - Op Income
Op Income ± nonoperating expenses and income = Pretax Income
Pretax Income - Tax Expense = Income from continuing operations
Income from continuing operations - Discontinued items / Extraordinary events = Net Income
Net Income / Net Sales = Net Profit Margin
Net Income / Average Dividends Outstanding = EPS
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Revenues
Sales Revenue
Interest Revenue
Fee Revenue, Rent Revenue, etc
The Revenue Principle:
Revenue is reported when:
- Delivery of product/service has occurred
- Evidence that customer will pay
- Fixed/determinable price
- Collection is assured
Contra Revenue Accounts (Debit Balance, +XR, -R, -Stockholder's Equity)
Credit Card Discounts
Credit card company shaves off a portion of the sales, 2-4%
Sales Discounts
Report as %/Discount Days, Net/Total Days
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Returns and Allowances
How to Account:
If before cash was paid:
- Debit Sales Returns by the returned amount, Credit Accounts Receivable by same amount
Remember to reverse the cost of goods sold as well: credit cost of goods sold by returned amount, debit inventory
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How to Account:
- Credit Revenue by GROSS SALES
- Debit Contra Revenue Accounts
- Debit Cash by Net Sales
Expenses
Cost of Goods Sold
Selling/General/Admin Expenses
Interest Expense
:!:Wage Expense
Rent Expense
:!:Depreciation Expense
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Depreciation Expense is the income statement analog to accumulated depreciation, a contra-asset account
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Shows Revenues, Expenses over a PERIOD of time
Operating Income ± other income (gain/losses, interest expense, investment income) = Pretax Income
