principles of accounting, 4th edition1 the income statement 3
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Principles of Accounting, 4th edition1
The Income Statement
3
Principles of Accounting, 4th edition2 Principles of Accounting, 4th edition2
PowerPoint 17 Chapter 3, Unit 4
The Income Statement Format
Who?
What?
When?
Revenue
minus
Expenses
equals
Net Income (Net Loss)
$
$
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PowerPoint 18 Chapter 3, Unit 4
The Income Statement:
Determining Net Income (Net Loss)
(a)
(b)
(c)
(d)
(e)
$150 000
30 000
131 000
74 000
58 000
–
–
–
–
–
$ 70 000
29 500
135 000
68 000
60 000
=
=
=
=
=
$
Revenue – Expenses = Net Income (Net Loss)
• When REVENUE is greater than expenses there is a NET INCOME.
• When EXPENSES are greater than revenue there is a NET LOSS.
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PowerPoint 19 Chapter 3, Unit 5
Revenue and Expense AccountsDetermine Net Income or Net Loss
Revenue and Expense Accounts
Net Income or Net Loss
Owner’s Capital Account
DEBIT
Decreases the Balance
NET LOSS
CREDIT
Increases the Balance
NET INCOME
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PowerPoint 20 Chapter 3, Unit 5
Income Statement Accounts
Debits and credits for income statement accounts are determined by how they affect owner’s equity.
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PowerPoint 21 Chapter 3, Unit 5
Summary of Debit and Credit Theory
Balance Sheet Accounts
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PowerPoint 22 Chapter 3, Unit 5
Summary of Debit and Credit Theory
Income Statement Accounts
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PowerPoint 23 Chapter 3, Unit 5
Transaction Analysis: Asking the Right Questions
1. Which accounts were affected?
2. Were the accounts A, L, OE, R, or E accounts?
3. Did the accounts increase or decrease?
4. Were the accounts debited or credited?
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PowerPoint 24 Chapter 3, Unit 5
The Owner’s Capital and Drawings Accounts: What Are They? (page 1)
C. PICCOLO, CAPITAL
DEBIT
Decrease
(c) Losses
CREDIT
Increase
(a) Owner’s investment
(b) Profits
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PowerPoint 24 Chapter 3, Unit 5
The Owner’s Capital and Drawings Accounts: What Are They? (page 2)
C. PICCOLO, DRAWINGS
DEBIT
Increase
(a) Withdrawals of assets and
cash
(b) Owner’s salary
CREDITDecrease
The Drawings account is a record of all withdrawals of assets by the owner.
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PowerPoint 25 Chapter 3, Unit 5
Calculating the New Capital: Net Income and Drawings, Drawings Smaller than Net Income (page
1) Owner’s Equity
D. Quan, Capital May 1 $125 400
Add: Net Income for May $5 000
Less: D. Quan, Drawings 2 580
Increase in Capital
D. Quan, Capital May 31 $
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PowerPoint 25 Chapter 3, Unit 5
Calculating the New Capital: Net Income and Drawings, Drawings Smaller than Net Income (page
2) Owner’s Equity
D.K. Kirchner, Capital June 1 $56 500
Add: Net Income for June $6 000
Less: D.K. Kirchner, Drawings 2 600
Increase in Capital
D.K. Kirchner, Capital June 30 $
• Net Income INCREASES Capital.
• Drawings DECREASE Capital.
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PowerPoint 26 Chapter 3, Unit 5
Calculating the New Capital: Net Loss and Drawings
Owner’s Equity
K. Chari, Capital July 1 $228 900
Less: Net Loss for May $1 500
Less: K. Chari, Drawings 2 400
Decrease in Capital
K. Chari, Capital July 31 $
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PowerPoint 27 Chapter 3, Unit 5
Drawings Larger than Net Income
Owner’s Equity
C. Hnatyshin, Capital August 1 $87 200
Add: Net Income for May $ 310
Less: C. Hnatyshin, Drawings 1 730
Decrease in Capital
C. Hnatyshin, Capital August 31 $
Net Loss DECREASES Capital.
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PowerPoint 28 Chapter 3, Unit 5
The General Ledger