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Income Statement
All of the accounting activities: journalizing, posting, trial balance and worksheet have one goal in mind, to report the financial progress and conditions of the business. Most businesses report their financial progress with three forms: income statement, statement of retained earnings, and a balance sheet.
We will be preparing three different financial statements: income statement, statement of retained earnings, and a balance sheet. If you click on the worksheet link and scroll down below the worksheet, you will see these partially completed forms. Your job in this lesson will be to complete these three financial statements.
In the last chapter we prepared a worksheet with adjustments for Bromley's Formal Wear. That will make our job a lot easier to prepare financial statements. Remember that the worksheet contains income statement and balance sheet columns. These columns will be the basis for preparing our financial statements. Click on the link above for the worksheet to see the completed worksheet with adjustments that we prepared in the last lesson.
Income Statement
- An income statement reports the revenue, cost of merchandise sold, the expenses of operating the business, and the net income.
- Remember how the income statement works.
- We start out with our sales, and then deduct any refunds from that amount to get net sales.
- The next section is the cost of merchandise sold section.
- In a merchandising business, this section is very important, since dealing with the inventory, purchases and cost of goods sold is critical to having an accurate income statement.
- Service business do not have this section and the income statement is simply sales minus total expenses to arrive at the net income.
- To calculate cost of goods sold, we start out with the beginning inventory.
- Then we add any other purchases of merchandise to it to get total cost of merchandise available for sale.
- From that number, we subtract the ending inventory to get cost of goods sold.
- To determine gross profit, profit before operating expenses, we subtract cost of goods sold from sales.
- The next section of the income statement lists all of our expenses, totals them and then subtracts the total expenses from the gross profit to determine net profit.
- The formulas listed below will help you develop your income statement for Bromley's Formal Wear.
Look at the coordinates on the Income Statement, then enter the formula in that place to transfer the worksheet numbers over to the income statement.
| Cell Coordinates and Formulas |
| Account Name | Coordinate | Formulas |
| Sales | F58 | =H29 |
| Net Sales | F60 | =H29-G30 |
| Beginning Inventory | D63 | =F13 |
| Purchases | D64 | =G32 |
| Purchase Ret. | D65 | =H33 |
| Net Purchases | D66 | =D64-D65 |
| Cost of Mdse Avail | D67 | =F13+G32 |
| Ending Inventory | E68 | =E13 |
| Cost of Goods Sold | F69 | =D67-E68 |
| Gross Profit | F70 | =F60-F69 |
| Salary Expense | D73 | =G34 |
| Rent Expense | D74 | =G35 |
| Repairs Expense | D75 | =G36 |
| Advertising Expense | D76 | =G37 |
| Supplies Expense | D77 | =G38 |
| Depreciation Expense | D78 | =G39 |
| Insurance Expense | D79 | =G40 |
| Miscellaneous Expense | D80 | =G41 |
| Payroll Taxes | D81 | =G42 |
| Legal & Accounting | D82 | =G43 |
| Utilities | D83 | =G44 |
| Alteration Expense | D84 | =G45 |
| Interest Expense | D85 | =G46 |
| Delivery Expense | D86 | =G47 |
| Total Expenses | F87 | =sum(D73:D86) |
| Net Income | F88 | =F70-F87 |
- Formulas may differ slightly. They may come from a number of columns from the worksheet and still be correct.
- Print this report for your instructor.
- Now prepare an income statement for your own company and printout a copy for your instructor.
Statement of Retained Earnings
In addition to an income statement and balance sheet, most corporations issue a statement of retained earnings. Click on the worksheet link above and key the formulas in the correct cells to produce this report.
| Cell Coordinates and Formulas |
| Account Name | Cell Coordinate | Formula |
| Retained Earnings Beginning of Year | D94 | =D27 |
| Net Income | D95 | =G50 |
| Subtotal | D96 | =D94+D95 |
| Less Dividends | D97 | |
| Retained Earnings End of Year | D98 | =D27+G50-D97 |
- Formulas may differ slightly.
- They may come from a number of columns from the worksheet and still be correct.
- Print out this report for your instructor.
- Now prepare a statement of retained earnings for your own company and print out a copy for your instructor.
Balance Sheet
The owners of a business must make many management decisions. It is important for the owner so see the financial condition of the business at a given date. A report that shows this condition is a balance sheet. It summarizes asset, liabilities and stockholders' equity. The information to prepare the balance sheet comes from the balance sheet columns of the worksheet. Listed below is the information needed to prepare a balance sheet.
| Cell Coordinates and Formulas |
| Cash | C105 | =I4 |
| Accounts Receivable | C106 | =I5 |
| Furniture & Fixtures | C107 | =I6 |
| Accum Depreciation Furn & Fixtures | D108 | =J7 |
| Office Supplies | C109 | =I8 |
| Other Assets | C110 | =I9 |
| Office Equipment | C111 | =I10 |
| Acc Dep Office Equi. | D112 | =J11 |
| Prepaid Insurance | C113 | =I12 |
| Mdse. Inventory | C114 | =I13 |
| Total Assets | C115 | =sum(C105:C114)-sum(D105:D114) |
| Notes Payable | D118 | =J14 |
| Accounts Payable | D119 | =J15 |
| Workers Comp | D120 | =J16 |
| Federal Income Tax | D121 | =J17 |
| FICA | D122 | =J18 |
| Medicare | D123 | =J19 |
| FUTA | D124 | =J20 |
| SUTA | D125 | =J21 |
| Sales Tax | D126 | =J22 |
| SDI | D127 | =J23 |
| State Income Tax | D128 | =J24 |
| State Emp. Training | D129 | =J25 |
| Total Liabilities | D130 | =sum(D118:D129) |
| Common Stock | D133 | =D26 |
| Retained Earnings | D134 | =G50 |
| Total Stock Equity | D135 | sum(D133:D134) |
| Total Liab + StockHolders' Equity | D136 | =D130+D135 |
- Formulas may differ slightly.
- They may come from a number of columns from the worksheet and still be correct.
- When finished make sure that the balance sheet is in balance.
- Total assets less accumulated depreciation should equal total liabilities plus stockholders' equity.
- Print out this report for your instructor.
- Now complete a balance sheet for your own company and print out a copy for your instructor.