4 Revenue and Expenses
Income Statement Fundamentals
Jacqueline Gagnon
The Single-Step Income Statement
- Simple Co. (My Turn)
- Simple Co. had four transactions during the month of January 20X3.
- Sold 10 units of inventory for $100 per unit. The cost of inventory was $40 per unit.
- Simple paid $100 cash for the freight charges on the 10 January sale.
- Simple paid their utility bill for the month of January for $210.
- Simple received cash for interest on investments of $75.
Let’s journalize these entries, then create an Income Statement!
| DR | Cash | 1,000 | ||
| CR | Sales Revenue | 1,000 |
| DR | Cost of Goods Sold | 400 | ||
| CR | Inventory | 400 |
| DR | Freight Expense | 100 | ||
| CR | Cash | 100 |
| DR | Utilities Expense | 210 | ||
| CR | Cash | 210 |
| DR | Cash | 75 | ||
| CR | Interest Income | 75 |
Now comes the single-step income statement. Notice that all income accounts are grouped and totalled as total income, and expenses are grouped and totalled as total expenses. Total income less total expenses is net income.
| Simple Co. Income Statement (Single Step) |
||
|---|---|---|
| Revenue: | ||
| Sales Revenue | 1,000 | |
| Interest Income | 75 | 1,075 |
| Expenses: | ||
| Cost of Goods Sold | (400) | |
| Freight Expense | (100) | |
| Utilities Expense | (210) | (710) |
| Net Income | 365 | |
What does this Income Statement tell us? It says that Simple Co earned $1,075 by operating their business. But in order to earn that income, they had to spend $710. So, they earned $365 on a net basis. This $365 belongs to the company’s owners and will be transferred to Retained Earnings, Equity.
Here’s your chance to get some practice at journalizing sales and expense transactions, and creating a single-step income statement (exciting!!).