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Crafting an Income Statement for Merchandising Businesses: Key Components Explained

In Lesson 15-1, we explore the essential elements of preparing an income statement, particularly for merchandising businesses. This includes understanding the revenue section, the significance of headings, and the role of contra account amounts. With a focus on the information presented on a worksheet, you will learn how to accurately present revenue, track expenses, and calculate net income. This lesson is crucial for accounting students and business owners who wish to maintain clear financial reporting and enhance decision-making processes.

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Crafting an Income Statement for Merchandising Businesses: Key Components Explained

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  1. LESSON 15-1

    Preparing an Income Statement
  2. INCOME STATEMENT INFORMATION ON A WORK SHEET page 448 LESSON 15-1
  3. 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
  4. 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
  5. 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
  6. TERMS REVIEW page 454 net sales cost of merchandise sold gross profit on sales LESSON 15-1

  7. LESSON 15-2

    Analyzing an Income Statement
  8. ANALYZING AN INCOME STATEMENT SHOWING A NET LOSS page 457 LESSON 15-2
  9. Market Priceper Share Net Incomeafter FederalIncome Tax ÷ ÷ Earnings perShare Number of SharesOutstanding = = Price-EarningsRatio Earningsper Share FINANCIAL RATIOS page 459 Earnings per Share $80,313.95 ÷ 2,500 = $32.13 Price-Earnings Ratio $345.00 ÷ $32.13 = 10.7 LESSON 15-2
  10. TERMS REVIEW page 460 financial ratio earnings per share price-earning ratio LESSON 15-2

  11. LESSON 15-3

    Preparing a Statement of Stockholder’s Equity
  12. CAPITAL STOCK SECTION OF THE STATEMENT OF STOCKHOLDERS’ EQUITY page 461 1 2 3 4 5 1. Heading 2. Capital Stock and Par Value 3. Stock at the beginning of the year 4. Stock issued during the year 5. Total stock issued at the end of the year LESSON 15-3
  13. 5 6 7 RETAINED EARNINGS SECTION OF THE STATEMENT OF STOCKHOLDERS’ EQUITY page 462 1 3 2 4 1. Retained Earnings 4. Dividends declared 2. Beginning balance 5. Increase in retained earnings 3. Net income after federal income tax 6. Ending balance 7. Total stockholders’ equity LESSON 15-3
  14. TERMS REVIEW page 463 statement of stockholders’ equity par value LESSON 15-3

  15. LESSON 15-4

    Preparing a Balance Sheet
  16. BALANCE SHEET INFORMATION ON A WORK SHEET page 464 LESSON 15-4
  17. CURRENT ASSETS SECTION OF A BALANCE SHEET page 465 1 2 3 4 5 1. Heading 3. Book value of accounts receivable 4. Asset accounts 2. Begin assets section 5. Current assets LESSON 15-4
  18. 4 5 PLANT ASSETS SECTION OF A BALANCE SHEET page 466 1 2 3 1. Write the heading Plant Assets. 2. Calculate the book value of office equipment. 3. Use the same procedure to calculate the book value of store equipment. 4. Calculate total plant assets. 5. Calculate total assets. LESSON 15-4
  19. 2 LIABILITIES SECTION OF A BALANCE SHEET page 467 1. Heading 2. Account title and amount of each current liability 1 3. Total liabilities 3 LESSON 15-4
  20. 3 2 4 5 6 STOCKHOLDERS’ EQUITY SECTION OF A BALANCE SHEET page 468 1 1. Stockholders’ Equity 5. Total liabilities and stockholders’ equity 2. Capital stock 6. Double rules 3. Retained earnings 4. Total stockholders’ equity LESSON 15-4
  21. COMPLETED BALANCE SHEET page 469 (continued on next slide) LESSON 15-4
  22. COMPLETED BALANCE SHEET page 469 (continued from previous slide) LESSON 15-4
  23. TERMS REVIEW page 471 current liabilities long-term liabilities supporting schedule LESSON 15-4
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