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Importance of Income Statements

Importance of Income Statements - PARTS OF INCOME STATEMENT...

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Importance of Income Statements o How the company performed over the last period o Manager’s decisions <-> results of those decisions o Trends over the long haul Profits going up or down over time o Projected income statements amounts are compared to actual amounts o Company and manager’s performance o Very close tie in with balance sheet When a Company earns Revenue o When revenue increases and accounts receivable or cash increase [assets] o Earns revenue when makes a sale as well as when it delivers the product/service o Unearned revenue = liability [ what company owes customer o Therefore revenue affects liabilities and assets When a company incurs expenses o Expenses increase and assets decrease OR expenses increase and liabilities increase o Revenues and expenses impact assets and liabilities -margins: steps in process in getting to net income; help evaluate company; subtotals of different sections in income statement -cost of goods sold: cost of inventory sold; expense
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Unformatted text preview: PARTS OF INCOME STATEMENT • Sales Revenue (net) o net means something has been subtracted out before getting value o How much to show and when to show it = two questions when determining rev o Sales discount, return, and allowances are subtracted from this value o Sales discounts Purpose: get customers to pay sooner; speed up transaction process Company doesn’t know eventual outcome of this discount Sales terms: 2/10, n/30 {two ten net 30}: 2 is the amount of discount (2%); 10 is amount of days must be paid to be eligible for discount; net 30: if customer doesn’t pay then total amount is due within 30 days o Return Ask the questions whats wrong with product? In order to figure out if they can resell product or not o Allowances Reduction of sales price after sales take place [ bought shirt, bring home and no button….go back and ask for partial refund] • Cost of Golds Sold [COGS] : Inventory Systems...
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