Summary of the Income Statement - Year end Issues

INCOME STATEMENT SUMMARY:

In summary, the Income Statement is a financial tool used to determine whether a company earned a profit or incurred a loss on a given day, month or year. It always shows a company's revenues and expenses for a period no longer than one year. It is also used to determine the amount of income tax a company is required to pay. Remember that the income statement NEVER extends beyond the company's year end. When a business reaches its year end, all revenue and expense accounts are reduced to Zero and new expenses and revenues begin to accumulate. The format remains the same no matter what type of business you own or plan to establish.

If you are planing to expand your business or are starting a business from scratch, you will be required to develop forecasted income statements for a three year period. You will learn how to do this under the section entitled "Developing Your Own Forecasted Financial Statements". In closing, we would like to show you the income statement for Mary Parker's Mrs. Blue company as of 9:00 AM, January 1, 200Y (IE the day immediately following her year end of December 31) . Don't be surprised at what you see.

MRS. BLUE
INCOME STATEMENT
FOR THE YEAR BEGINNING JANUARY 1, 200Y

REVENUE:
Sales of blue jeans $ 0.00
Cost of Goods Sold $ 0.00
GROSS MARGIN $ 0.00

OPERATING EXPENSES:

Marketing Expenses:
Advertising $ 0.00
Sales Promotions $ 0.00
Radio $ 0.00
Total Marketing Expenses

Administrative Expenses:
Wage Expense $ 0.00
Employer Mandatory Costs $ 0.00
Rent Expense $ 0.00
Telephone Expense $ 0.00
Utilities Expense $ 0.00
Office Supplies Expense $ 0.00
Registration of Company name $ 0.00
Miscellaneous $ 0.00
Total Administrative Expenses $ 0.00

TOTAL OPERATING EXPENSES $ 0.00

Earnings before taxes $ 0.00
Income Taxes (40% tax rate x  $0.00) $ 0.00

NET INCOME AFTER TAXES $ 0.00

 

Remember, an Income Statement (revenues and expenses accounts) have zero account balances at the beginning of the company's new business year. Moreover, if the MRS. Blue Company's year end had been set at March 31, 200Y, the Income Statement account balances at the beginning of the day on April 1, 200Y, would be Zero (0). Do not confuse the calender year end with a business year end. We all know the calendar year ends December 31 each year. A businesses' year end, however, could be any day of any month. When a business year end is set, however, it remains the same each year.

 

Categories: Financial