All Accounts In Operations In Staement Of Cash Flows Basic Accounting Concepts – Income Statement

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Basic Accounting Concepts – Income Statement

Success in accounting education depends on proper understanding of basic accounting concepts, which form the basis of theory and practice. One of the concepts to know and understand is the income statement, which will be described and explained further.

concept

Income statement It is one of the three main financial statements, including: balance sheet And Cash flow statement. This financial statement indicates the change in the financial position of the business for a particular period, ie month, quarter or year. This statement shows the net profit, i.e. increase in owners’ equity, or net loss, i.e. decrease in owners’ equity, for a given period.

Income statement is related to balance sheet In terms of net result for the period, i.e. the profit or loss for the period from these financial statements balance sheet as an increase or decrease in Earnings retained (The result is not distributed as dividend to the shareholders).

Items included

Considering the structure of Income statement, it is important that this statement not only indicates the net result for the period but also the component parts, which produce this result. So this statement will include the following:

  • Revenue: Amounts earned for goods sold or services rendered
  • Selling price: Cost of goods sold or services rendered. If only goods are being sold then these goods will be called Cost of goods sold. All expenses directly related to the revenue earned are included here

  • Net Profit: The difference between two stated items, which shows how much revenue a business generates from core operations

  • Running Cost: This item includes expenses that may not be directly related to the cost of goods sold or services provided. Examples could be accountants’ salaries, rent for administrative office space, and others

  • Operating profit: The difference between net profit And Running costs

  • Interest Expense: These expenses are shown separately to show the financial costs incurred by the business and whether it is making sufficient profits to be able to pay interest on time.

  • Net Profit (Loss): This is the net result of the period. If it is positive then we have profit. If it is negative then you have loss.

It is important to note that Income statement Generally prepared on an accrual basis, that is, income and related expenses are recognized not yet paid or received in cash, but based on the obligation to pay for goods sold or services provided by customers and to meet the obligations of the business.

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