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    Advanced Accounting Week 3

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    rahma
    The document discusses income statements and the basic accounting equation. It provides examples of an income statement format and calculations. It includes: 1) An income statement reports a company's revenues, expenses and net income/loss for a specific period. Revenues are increases in equity from business activities, while expenses are costs of assets used to generate revenue. 2) An example income statement is provided for Kellogg Company for 2014, showing revenues, expenses, pre-tax income, taxes, and net income. 3) A second example provides an incomplete income statement and balance sheet for Riedy, Inc., requiring calculations to fill in missing values.

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    Advanced Accounting Week 3

    Uploaded by

    rahma
    47 views3 pages
    The document discusses income statements and the basic accounting equation. It provides examples of an income statement format and calculations. It includes: 1) An income statement reports a company's revenues, expenses and net income/loss for a specific period. Revenues are increases in equity from business activities, while expenses are costs of assets used to generate revenue. 2) An example income statement is provided for Kellogg Company for 2014, showing revenues, expenses, pre-tax income, taxes, and net income. 3) A second example provides an incomplete income statement and balance sheet for Riedy, Inc., requiring calculations to fill in missing values.

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    Advanced accounting week 3

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    The document discusses income statements and the basic accounting equation. It provides examples of an income statement format and calculations. It includes: 1) An income statement reports a company's revenues, expenses and net income/loss for a specific period. Revenues are increases in equity from business activities, while expenses are costs of assets used to generate revenue. 2) An example income statement is provided for Kellogg Company for 2014, showing revenues, expenses, pre-tax income, taxes, and net income. 3) A second example provides an incomplete income statement and balance sheet for Riedy, Inc., requiring calculations to fill in missing values.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    47 views3 pages

    Advanced Accounting Week 3

    Uploaded by

    rahma
    The document discusses income statements and the basic accounting equation. It provides examples of an income statement format and calculations. It includes: 1) An income statement reports a company's revenues, expenses and net income/loss for a specific period. Revenues are increases in equity from business activities, while expenses are costs of assets used to generate revenue. 2) An example income statement is provided for Kellogg Company for 2014, showing revenues, expenses, pre-tax income, taxes, and net income. 3) A second example provides an incomplete income statement and balance sheet for Riedy, Inc., requiring calculations to fill in missing values.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    Advanced accounting week 3

    INCOME STATEMENT:

    Net income: Revenues > expenses


    Net loss: Revenues < expenses

    Basic accounting equation: Assets = Liabilities + Stockholders equity


    Expanded version: Assets = Liabilities + contributions – distributions + revenues – expenses

    Net income increases owner’s equity, while net loss decreases owner’s equity.

    Income statement reports the revenues and expenses and resulting net income or loss of a
    company for a SPECIFIC PERIOD of time.

    Revenues are the GROSS increase in owner’s equity resulting from business activities entered
    into for the purpose of earning income.

    Expenses are the cost of assets consumed or service rendered in the process of earning
    revenue.

    ABC Co.
    Incme statement
    Jan.1 – dec.31,2018

    REVENUES:
    Sales a
    Other revenues b
    Total revenues = I

    EXPENSES:
    Cost of good sold c
    Salaries and wages exp. d
    Marketing exp. e
    Administrative exp. f
    Interest exp. g
    Depreciation exp. h
    Total expenses= (II)

    PRE-TAX income = III = I-II


    Income taxes expenses = (IV)

    NET INCOME/LOSS = III – IV

    Example1:
    Kellogg Company is the world’s leading producer of ready-to-eat cereal and a leading
    producer of grain-based convenience foods such as frozen waffles and cereal bars.
    Suppose the following items were taken from its 2014 income statement and balance
    sheet (all dollars are in millions)
    _ Retained earnings $ 5 481 _ Bonds payable $ 4 835
    _ cost of goods sold $ 7 184 _ Inventory $ 910
    _ Selling and administrative exp. $ 3 390 _ Sales revenue $ 12 575
    _ Cash $ 334 _ Accounts payable $ 1 077
    _ Notes payable $ 44 _ Common stock $ 105
    _ Interest exp. $ 295 _ Income tax exp. $ 498

    Instructions:
    a/ In each case, identify whether the item is an A, L, SE, R or E
    b/ Prepare an income statement for Kellogg Company for the year ended December 31,2018.

    a/
    (SE) Retained earnings $ 5 481 (L) Bonds payable $ 4 835
    (E) Cost of goods sold $ 7 184 (A) Inventory $ 910
    (E)Selling and administrative exp. $ 3 390 (R) Sales revenue $ 12 575
    (A) Cash $ 334 (L) Accounts payable $ 1 077
    (L) Notes payable $ 44 (SE) Common stock $ 105
    (E) Interest exp. $ 295 (E) Income tax exp. $ 498

    b/

    Kellogg Co.
    Incme statement
    Jan.1 – dec.31,2014

    REVENUES:
    Sales revenue $ 12 575
    Total revenues = $ 12 575

    EXPENSES:
    Cost of good sold ($ 7 184)
    Selling and adm exp. ($ 3 390)
    Interest exp. ($ 295)
    Total expenses= ($ 10 869)

    PRE-TAX income = $ 1 706


    Income tax expenses* = ($ 498)

    NET INCOME/LOSS = $ 1 208

    * In Turkey income Tax expenses is about 22%.

    Example 2:
    Here are incomplete financial statement for Riedy, Inc
    BALANCE SHEET
    ASSETS: LIAB:
    Cash $7,000 Acc.Payable $ 5,000
    Inventory $10,000 SE:
    Buildings $45,000 Common Stock (d)
    Retained earning (c)
    Total assets = (a) Total liab + SE = (b)

    Income statement

    Revenues $ 85,000
    Cost of goods sold $ (e)
    Salaries and wages expenses $ 10,000
    NET INCOME = (f)

    Retained earning statement

    Beginning ret.ear. $12,000


    (+) net income $ (g)
    (-) dividends $ 5,000
    Ending ret. Ear. $ 27,000

    Instruction: complete the missing information

    Answer
    (a) = summation of all assets = 7,000 + 10,000+ 45,000 = $ 62,000
    (b) = total liab + SE must be equal to total assets  a=b= $62,000
    (c) = from the retained earnings statement we know that the ending retained earning =
    $27,000
    (d) = total (liab + SE) – liab – retained earnings
    = 62,000 – 5,000 – 27,000 = $ 30,000
    (g) = ending retained earning + dividends – beginning retained earning
    = 27,000 + 5,000 – 12,000 = $ 20,000
    (f) = from the retained earnings statement we know that f=g= $ 20,000
    (e) = revenues - net income - salaries and wages exp.
    = 85,000 - 20,000 - 10,000 = $ 55,000

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