Presentation Format

How do outsiders learn about a company’s revenues expenses assets and liabilities?

Through financial statements produced periodically

What four financial statements are typically reported?

Income statement statement of retained earnings balance sheet statement of cash flows

What is the main content of an income statement?

Listing of all revenues earned and expenses incurred during a period

Define revenues.

Increases in net assets created by sales of goods or services from primary operations

Define expenses.

Decreases in net assets incurred to generate revenues such as salaries rent or utilities

What are gains?

Increases in net assets from incidental events outside primary operations

What are losses?

Decreases in net assets from incidental events outside primary operations

How do gains and losses differ from revenues and expenses?

Revenues and expenses come from core operations while gains and losses are incidental

What is cost of goods sold?

Expense reflecting the cost of merchandise or inventory sold during the period

How is gross profit calculated?

Revenues minus cost of goods sold

What is the gross profit percentage?

Gross profit divided by sales revenue

Why is gross profit percentage important?

It shows profitability and allows comparison across years or competitors

Where is income tax expense shown on an income statement?

At the bottom separate from other expenses

Why is income tax listed separately?

Because it is a government assessment caused by profitability not an expense incurred to generate revenue

What are the five common components of a complete financial report?

Income statement statement of retained earnings balance sheet statement of cash flows explanatory notes