Body has three major captions – revenues, expenses, and net income—corresponding to the equation for the income statement (Revenues – Expenses = Net Income).Individual types of revenues and expenses are reported under the revenue and expense headings.Each major caption has an underlined subtotal and the “bottom line” amount for net income has a double underline to highlight it.A dollar sign appears only at the top and bottom of the column of numbers.oWhen listing the accounts on the income statement, revenues are on top, usually with the largest, most relevant revenue listed first.
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oThen expenses are subtracted, from largest to smallest, except that Income Tax Expense is the last expense listed.oNet Income is the difference between total revenues and total expenses.oNet income is a measure of how much better off your business is, not how much cash you made.SUMMARY OF THE FOUR BASIC FINANCIAL STATEMENTS -Income Statement:oPurpose: To report… the financial performance of the business during the current accounting period.oStructure: Revenue – Expenses = Net Income (Loss)oExamples of content: Sales revenue, wages expense, supplies expense, rent expense-Statement of Retained Earnings:oPurpose: To report… the accumulation of earnings retained in the business during the current accounting period with that of prior periods.oStructure: Beginning Retained Earnings + Net Income (this period) – Dividends (this period) = Ending Retained EarningsoExamples of content: Net income is from the income statement. Dividends are amounts distributed this period.-Balance Sheet: oPurpose: To report… the financial position of a business at a point in time.oStructure: Assets = Liabilities + Stockholders’ EquityoExamples of content: Cash, receivables, supplies, equipment, accounts payable, notes payable, common stock, retained earnings-Statement of Cash Flows:oPurpose: To report… activities that caused increases and decreases in cash during the current accounting period.oStructure: +/- Operating Cash Flows +/- Investing Cash Flows +/- Financing Cash Flows = Change in Cash + Beginning Cash = Ending CashoExamples of content: Cash collected from customers, cash paid to suppliers, cash paid for equipment, cash borrowed from banks, cash received from issuing stock
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