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Understanding Income Statement Preparation for Merchandising Businesses

This lesson focuses on the essential components of preparing an income statement for a merchandising business. Key concepts covered include net sales, cost of merchandise sold, and gross profit. Students will learn to differentiate between total sales and the adjustments for discounts and returns, calculate the cost of merchandise sold, and comprehend the significance of gross profit. Additionally, the lesson outlines the structure of an income statement, emphasizing the revenue section and the impact of federal income tax on net income.

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Understanding Income Statement Preparation for Merchandising Businesses

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  1. LESSON 15-1 Preparing an Income Statement

  2. TERMS page 454 • net sales – Total sales less sales discount and sales returns and allowances • cost of merchandise sold – Original price of merchandise sold during fiscal period • gross profit on sales – revenue remaining after cost of merchandise sold has been deducted LESSON 15-1

  3. INCOME STATEMENT INFORMATION ON A WORK SHEET page 448 LESSON 15-1

  4. REVENUE SECTION OF AN INCOME STATEMENT FOR A MERCHANDISING BUSINESS page 449 1 2 3 4 5 8 9 6 7 1. Heading 6. Contra account amounts 2. Revenue section 7. Contra account total 8. Net Sales 3. Title of revenue account 4. Sales amount 9. Net sales amount 5. Less contra accounts LESSON 15-1

  5. 5 6 4 COST OF MERCHANDISE SOLD SECTION OF AN INCOME STATEMENT FOR A MERCHANDISING BUSINESS page 450 1. Cost of Merchandise Sold section 2. Beginning inventory 1 3. Purchases section 2 4. Total cost of merchandise available for sale 3 5. Ending inventory 6. Cost of merchandise sold LESSON 15-1

  6. 6 COMPLETING AN INCOME STATEMENT FOR A MERCHANDISING BUSINESS page 452 1. Gross Profit on Sales 2. Expenses section 7 1 3. Net Income before Federal Income Tax 4. Less Federal Income Tax Expense 2 5. Net Income after Federal Income Tax 6. Double lines 3 7. Component percentage 4 5 LESSON 15-1

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