11.

1
THE INCOME STATEMENT
 11.1 THE INCOME STATEMENT
 The Accounting System…

Transaction #1
Special General Trial Balance
Transaction #2 Journals Ledger Balance Sheet
Ledger
Cash
Transaction #3 Receipts
Journal
Ledger
Transaction #4 Cash
Payments
Transaction #5 Journal
Ledger Income
Sales
Transaction #6
Journal
Statement

Transaction #7 Ledger
Purchase
Journal
Transaction #8

1. Transactions 2. Special 3. Enter transactions in 4. Prepare a 5. Prepare Financial

occur Journals General Ledger
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Trial Balance Reports
 11.1 THE INCOME STATEMENT
 At the end of eac h repor ting period all Revenues and Expenses are closed of f
to the Profit & Loss Summar y account …

Closing
The balance of the account is reset to zero at the end of the period

Sales [R]
30/6 Cash at Bank 35000
30/6 Profit and Loss Summary 53000 30/6 Debtors Control 18000
53000 53000

Revenue

Expenses
© Michael Allison, Trinity Grammar School.
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 11.1 THE INCOME STATEMENT
 Revenues and Expenses are closed of f so that:

1. Net profit for this period can 2. The net profit for next period
be determined can be determined by
resetting the balances to zero

© Michael Allison, Trinity Grammar School.

Author’s permission required for external use
 11.1 THE INCOME STATEMENT
 The Profit and Loss Summar y account enables the firm to determine whether it
has made either a…

Net Profit Net Loss

Profit and Loss Summary [OE] Profit and Loss Summary [OE]
30/6 Expense a/c’s 5100 30/6 Revenue a/c’s 9400 30/6 Expense a/c’s 7800 30/6 Revenue a/c’s 5900
30/6 Capital 4300 30/6 Capital 1900
9400 9400 7800 7800

Revenue
9400 Revenue
5900

- Expenses
5100 - Expenses
7800

= Net Profit
4300(Loss) = Net Profit
(1900) (Loss)

© Michael Allison, Trinity Grammar School.

Author’s permission required for external use
 11.1 THE INCOME STATEMENT
Profit and Loss Summary [OE]
30 Jun Expense accounts 5100 30 Jun Revenue accounts 9400
30 Jun Capital 4300
9400 9400

 While the Profit and Loss Summar y account shows whether the firm made a
Net Profit or a Net Loss , it is not easy to under stand

Information is understandable if:

• Users can comprehend its meaning easily (assuming a reasonable
knowledge of business and economics)

© Michael Allison, Trinity Grammar School.

Author’s permission required for external use
 11.1 THE INCOME STATEMENT
Profit and Loss Summary [OE]
30 Jun Expense accounts 5100 30 Jun Revenue accounts 9400
30 Jun Capital 4300
9400 9400

 To someone who isn’t an accountant or familiar with this account, the firm’s
profit is not easily under standable or easy to calculate
 A repor t is needed to set out this information in a more under standable
manner
 This repor t is called the…

Income Statement

© Michael Allison, Trinity Grammar School.

Author’s permission required for external use
11.1 THE INCOME STATEMENT
Profit and Loss Summary [OE]
30 Jun Expense accounts 5100 30 Jun Revenue accounts 9400
30 Jun Capital 4300
9400 9400

Income Statement for the month ended 30 June 2015

$ $
Revenue
Cash sales 6000
Credit sales 3400 9400
less Expenses
Wages 2000
Rent 3000
Insurance 100 5100
Net Profit 4300
© Michael Allison, Trinity Grammar School.
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 TASK

In-class Homework

SQ1 X
SQ2 X

© Michael Allison, Trinity Grammar School.

Author’s permission required for external use