Income Statement Overview - Chapter 1

Flashcards covering key concepts from the Income Statement chapter, including definitions of terms, formula usage, and types of accounts.

What is included in the order of financial statements?

1. Income Statement, 2. Retained Earnings Statement, 3. Balance Sheet, 4. Statement of Cash Flows (not covered in Accounting 201).

What type of business provides services instead of physical goods?

A service business, examples include an outdoor guide service and consulting firm.

What is the definition of an Income Statement?

Reports a company’s revenues and expenses over a specific period of time (month, quarter, year), helping to predict future financial performance.

What does the formula Revenue – Expenses = Net Income (or Net Loss) represent?

It shows the relationship between revenue and expenses to determine net income or net loss.

What does it mean if a company is 'In the black'?

It means that the company has a net income (profit) when revenues exceed expenses.

What does it mean if a company is 'In the red'?

It indicates a net loss when expenses exceed revenues.

What is revenue defined as?

The amount a business earns from sales or services during a given time period.

Name two examples of revenue accounts.

Service Revenue and Sales Revenue.

What are expenses defined as in an income statement?

The costs incurred to generate revenue during the same time period.

Name two examples of expense accounts.

Salaries Expense and Advertising Expense.

Why are dividends not considered expenses on the income statement?

Dividends are a distribution of profits to shareholders and appear on the retained earnings statement.

What is the bottom line net result if revenues exceed expenses?

Net Income (profit).

What is the result if expenses exceed revenues?

Net Loss.