Income statement

Income statement

SECOND ASSIGNMENT 

  1. Classify each item as an asset, liability, common stock, revenue, or expense:
  • Cost of renting property
  • Truck purchased
  • Notes payable
  • Issuance of ownership shares
  • Amount earned from providing service
  • Amount owed to suppliers
  1. Briefly describe which are the contents and purposes of each statement: income statement, balance sheet (100-200 words).

Solution 

  1. Classify each item as an asset, liability, common stock, revenue, or expense: 
  • Cost of renting property: Expense
  • Truck purchased: Asset
  • Notes payable: Liability
  • Issuance of ownership shares: Common stock
  • Amount earned from providing service: Revenue
  • Amount owed to suppliers Liability
  1. Briefly describe which are the contents and purposes of each statement: income statement, balance sheet (100-200 words).

Income Statement:

For a particular financial year, a company’s financial performance in terms of revenues and expenses through operating and non – operating costs is given by the Income Statement.

The components of income Statement is in the particular order:

  • Sales
  • Cost of Goods Sold
  • Gross profit
  • Operating Expenses (Ex SG&A (Selling, General, and Administrative Expenses, Depreciation etc.)
  • EBIT (Earnings before Income Taxes
  • Income Taxes
  • Adjustments from the discontinued operations.
  • Net Income

Income statements can be used to calculate financial ratios such as return on equity (ROE), return on assets (ROA), gross profit, operating profit, earnings before interest and taxes (EBIT), and earnings before interest taxes and amortization (EBITDA) and other ratios calculated on the basis of these components. The common-sized format of the income statement can provide each line item on the income statement as a percent of sales and hence it can be easily seen which expenses make up the highest proportion of sales. Analysts also use the income statement to compare year-over-year (YOY) and quarter-over-quarter (QOQ) performance by plotting trend lines across years.

Balance Sheet:

The balance sheet is also called the statement of financial position or statement of financial condition. Itpresents a company’s current financial position by disclosing the resources the company controls (assets) and its obligations to lenders and other creditors (liabilities) at a specific point in time. Owners’ equity represents the excess of assets over liabilities. This amount is attributable to the company’s owners or shareholders. Owners’ equity is the owners’ residual interest in (i.e., residual claim on) the company’s assets after deducting its liabilities.

The relationship among the three parts of the balance sheet (assets, liabilities, and owners’ equity) can be expressed in the following equation form: Assets = Liabilities + Owners’ equity                                                               

Noncurrent assets, Intangible assets, Property, plant and equipment, Leasing and rental assets, Investment property, Current financial liabilities, Trade payables, Current tax payables are some of the examples of its components