{"id":127,"date":"2024-09-06T16:46:42","date_gmt":"2024-09-06T16:46:42","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/chapter\/income-statement\/"},"modified":"2024-09-12T15:42:03","modified_gmt":"2024-09-12T15:42:03","slug":"income-statement","status":"publish","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/chapter\/income-statement\/","title":{"raw":"Income Statement","rendered":"Income Statement"},"content":{"raw":"<section class=\"textbox learningGoals\" aria-label=\"Learning Goals\">\r\n<ul>\r\n \t<li>Prepare an income statement<\/li>\r\n<\/ul>\r\n<\/section>&nbsp;\r\n\r\nThe first statement to prepare is the Income Statement.\r\n\r\nStart with your adjusted trial balance and make sure that your trial balance actually is in balance!\r\n<table class=\"fin-table acctstatement\"><caption>NeatNiks\r\nAdjusted Trial Balance\r\nFor the month ended October 31, 20XX<\/caption>\r\n<tbody>\r\n<tr>\r\n<th scope=\"col\"><span class=\"u-sr-only\">Reference No.<\/span><\/th>\r\n<th scope=\"col\"><span class=\"u-sr-only\">Accounts<\/span><\/th>\r\n<th scope=\"col\">Debits<\/th>\r\n<th scope=\"col\">Credits<\/th>\r\n<\/tr>\r\n<tr>\r\n<td>110<\/td>\r\n<td>Checking<\/td>\r\n<td class=\"r\">3,500.00<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>120<\/td>\r\n<td>Accounts Receivable<\/td>\r\n<td class=\"r\">5,650.00<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>125<\/td>\r\n<td>Supplies<\/td>\r\n<td class=\"r\">1,000.00<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>130<\/td>\r\n<td>Prepaid Rent<\/td>\r\n<td class=\"r\">10,000.00<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>210<\/td>\r\n<td>Account Payable<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">1,600.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>220<\/td>\r\n<td>Contractor Payable<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">1,200.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>310<\/td>\r\n<td class=\"r\">Nick Frank, Capital Contributions<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">20,000.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>330<\/td>\r\n<td>Nick Frank, Withdrawals<\/td>\r\n<td class=\"r\">4,000.00<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr class=\"highlight\">\r\n<td>410<\/td>\r\n<td>Service Revenue<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">8,750.00<\/td>\r\n<\/tr>\r\n<tr class=\"highlight\">\r\n<td>510<\/td>\r\n<td>Insurance Expense<\/td>\r\n<td class=\"r\">1,500.00<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr class=\"highlight\">\r\n<td>520<\/td>\r\n<td>Rent Expense<\/td>\r\n<td class=\"r\">2,000.00<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr class=\"highlight\">\r\n<td>530<\/td>\r\n<td>Supplies Expense<\/td>\r\n<td class=\"r\">1,600.00<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr class=\"highlight\">\r\n<td>540<\/td>\r\n<td>Contractor Expense<\/td>\r\n<td class=\"r\">2,300.00<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r line-double line-single\"><span class=\"u-sr-only\">Single line<\/span> 31,550.00\r\n<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-double line-single\"><span class=\"u-sr-only\">Single line<\/span> 31,550.00\r\n<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nThe income statement, sometimes called a statement of earning, or a profit and loss (P&amp;L) shows the results of operations by reporting net income. Net income is revenues less expenses (see the highlighted accounts on the adjusted trial balance above).\r\n\r\nWhen we compile these reports, we don\u2019t use debits and credits. Those are only used when we are recording transactions. For these reports, we just use regular numbers that ordinary people can easily grasp. Notice that the expenses are all listed and there is a single underline showing we are subtotaling them, with that subtotal listed directly underneath the revenue number. The bottom line, Net Income, is clearly shown as the combination of the two numbers above it. The external user knows that net income is revenue minus expenses, so we don\u2019t have to reiterate that on the statement.\r\n<table class=\"fin-table acctstatement\"><caption>NeatNiks\r\nIncome Statement\r\nFor the month ended October 31, 20XX<\/caption>\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Amount<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td colspan=\"3\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Revenues: <\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Service Revenue<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">$8,750<\/td>\r\n<\/tr>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"3\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td colspan=\"3\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Expenses:<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Insurance<\/td>\r\n<td class=\"r\">1,500<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Rent<\/td>\r\n<td class=\"r\">2,000<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Supplies<\/td>\r\n<td class=\"r\">1,600<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Contractors<\/td>\r\n<td class=\"r\">2,300<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">\u00a0 \u00a0 \u00a0 Total Expenses<\/th>\r\n<td class=\"line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\r\n<td class=\"r\">7,400<\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">Net Income<\/th>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0$1,350\u00a0<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nNow, how much did NeatNiks earn during the month of October?\r\n\r\n[reveal-answer q=\"452877\"]Show Answer[\/reveal-answer]\r\n[hidden-answer a=\"452877\"]The answer is $1,350. You can find this value in the final row: Net Income.[\/hidden-answer]\r\n\r\nNick Frank\u2019s equity increased by this amount. If you think of a business as a machine that generates new wealth for the owner, this is the output. Nick has increased his ownership in the business by increasing the assets (wealth) of the business by $1,350. This isn\u2019t the increase in cash, it\u2019s the overall increase in all assets, less any increase in debt.\r\n\r\nThis concept will become clearer as you look at the next three statements, but first let\u2019s just test our understanding of the Income Statement.\r\n\r\n<section class=\"textbox tryIt\" aria-label=\"Try It\">[ohm2_question hide_question_numbers=1]25292[\/ohm2_question][ohm_question hide_question_numbers=1]203084[\/ohm_question]<\/section>","rendered":"<section class=\"textbox learningGoals\" aria-label=\"Learning Goals\">\n<ul>\n<li>Prepare an income statement<\/li>\n<\/ul>\n<\/section>\n<p>&nbsp;<\/p>\n<p>The first statement to prepare is the Income Statement.<\/p>\n<p>Start with your adjusted trial balance and make sure that your trial balance actually is in balance!<\/p>\n<table class=\"fin-table acctstatement\">\n<caption>NeatNiks<br \/>\nAdjusted Trial Balance<br \/>\nFor the month ended October 31, 20XX<\/caption>\n<tbody>\n<tr>\n<th scope=\"col\"><span class=\"u-sr-only\">Reference No.<\/span><\/th>\n<th scope=\"col\"><span class=\"u-sr-only\">Accounts<\/span><\/th>\n<th scope=\"col\">Debits<\/th>\n<th scope=\"col\">Credits<\/th>\n<\/tr>\n<tr>\n<td>110<\/td>\n<td>Checking<\/td>\n<td class=\"r\">3,500.00<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr>\n<td>120<\/td>\n<td>Accounts Receivable<\/td>\n<td class=\"r\">5,650.00<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr>\n<td>125<\/td>\n<td>Supplies<\/td>\n<td class=\"r\">1,000.00<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr>\n<td>130<\/td>\n<td>Prepaid Rent<\/td>\n<td class=\"r\">10,000.00<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr>\n<td>210<\/td>\n<td>Account Payable<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">1,600.00<\/td>\n<\/tr>\n<tr>\n<td>220<\/td>\n<td>Contractor Payable<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">1,200.00<\/td>\n<\/tr>\n<tr>\n<td>310<\/td>\n<td class=\"r\">Nick Frank, Capital Contributions<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">20,000.00<\/td>\n<\/tr>\n<tr>\n<td>330<\/td>\n<td>Nick Frank, Withdrawals<\/td>\n<td class=\"r\">4,000.00<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr class=\"highlight\">\n<td>410<\/td>\n<td>Service Revenue<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">8,750.00<\/td>\n<\/tr>\n<tr class=\"highlight\">\n<td>510<\/td>\n<td>Insurance Expense<\/td>\n<td class=\"r\">1,500.00<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr class=\"highlight\">\n<td>520<\/td>\n<td>Rent Expense<\/td>\n<td class=\"r\">2,000.00<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr class=\"highlight\">\n<td>530<\/td>\n<td>Supplies Expense<\/td>\n<td class=\"r\">1,600.00<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr class=\"highlight\">\n<td>540<\/td>\n<td>Contractor Expense<\/td>\n<td class=\"r\">2,300.00<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r line-double line-single\"><span class=\"u-sr-only\">Single line<\/span> 31,550.00<br \/>\n<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-double line-single\"><span class=\"u-sr-only\">Single line<\/span> 31,550.00<br \/>\n<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>The income statement, sometimes called a statement of earning, or a profit and loss (P&amp;L) shows the results of operations by reporting net income. Net income is revenues less expenses (see the highlighted accounts on the adjusted trial balance above).<\/p>\n<p>When we compile these reports, we don\u2019t use debits and credits. Those are only used when we are recording transactions. For these reports, we just use regular numbers that ordinary people can easily grasp. Notice that the expenses are all listed and there is a single underline showing we are subtotaling them, with that subtotal listed directly underneath the revenue number. The bottom line, Net Income, is clearly shown as the combination of the two numbers above it. The external user knows that net income is revenue minus expenses, so we don\u2019t have to reiterate that on the statement.<\/p>\n<table class=\"fin-table acctstatement\">\n<caption>NeatNiks<br \/>\nIncome Statement<br \/>\nFor the month ended October 31, 20XX<\/caption>\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Amount<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td colspan=\"3\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Revenues: <\/strong><\/td>\n<\/tr>\n<tr>\n<td>Service Revenue<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">$8,750<\/td>\n<\/tr>\n<tr aria-hidden=\"true\">\n<td colspan=\"3\"><\/td>\n<\/tr>\n<tr>\n<td colspan=\"3\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Expenses:<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Insurance<\/td>\n<td class=\"r\">1,500<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr>\n<td>Rent<\/td>\n<td class=\"r\">2,000<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr>\n<td>Supplies<\/td>\n<td class=\"r\">1,600<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr>\n<td>Contractors<\/td>\n<td class=\"r\">2,300<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">\u00a0 \u00a0 \u00a0 Total Expenses<\/th>\n<td class=\"line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\n<td class=\"r\">7,400<\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">Net Income<\/th>\n<td class=\"r\"><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0$1,350\u00a0<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Now, how much did NeatNiks earn during the month of October?<\/p>\n<div class=\"qa-wrapper\" style=\"display: block\"><button class=\"show-answer show-answer-button collapsed\" data-target=\"q452877\">Show Answer<\/button><\/p>\n<div id=\"q452877\" class=\"hidden-answer\" style=\"display: none\">The answer is $1,350. You can find this value in the final row: Net Income.<\/div>\n<\/div>\n<p>Nick Frank\u2019s equity increased by this amount. If you think of a business as a machine that generates new wealth for the owner, this is the output. Nick has increased his ownership in the business by increasing the assets (wealth) of the business by $1,350. This isn\u2019t the increase in cash, it\u2019s the overall increase in all assets, less any increase in debt.<\/p>\n<p>This concept will become clearer as you look at the next three statements, but first let\u2019s just test our understanding of the Income Statement.<\/p>\n<section class=\"textbox tryIt\" aria-label=\"Try It\"><iframe loading=\"lazy\" id=\"ohm25292\" class=\"resizable\" src=\"https:\/\/ohm.one.lumenlearning.com\/multiembedq.php?id=25292&theme=lumen&iframe_resize_id=ohm25292&source=tnh\" width=\"100%\" height=\"150\"><\/iframe><iframe loading=\"lazy\" id=\"ohm203084\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=203084&theme=lumen&iframe_resize_id=ohm203084&source=tnh\" width=\"100%\" height=\"150\"><\/iframe><\/section>\n","protected":false},"author":6,"menu_order":13,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Income Statement\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"part":114,"module-header":"- Select Header -","content_attributions":[{"type":"original","description":"Income Statement","author":"Joseph Cooke","organization":"Lumen Learning","url":"","project":"","license":"cc-by","license_terms":""}],"internal_book_links":[],"video_content":null,"cc_video_embed_content":{"cc_scripts":"","media_targets":[]},"try_it_collection":null,"_links":{"self":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/127"}],"collection":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/users\/6"}],"version-history":[{"count":3,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/127\/revisions"}],"predecessor-version":[{"id":1032,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/127\/revisions\/1032"}],"part":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/parts\/114"}],"metadata":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/127\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/media?parent=127"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=127"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/contributor?post=127"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/license?post=127"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}