Accounting for Merchandising Operations: Income Statements and Balance Sheets

Determines profit or loss through one calculation: $\text{Total Revenues} - \text{Total Expenses}$ .
Classifies all data into two categories: revenues or expenses.
Advantages include simplicity, readability, and the logic that profit is only achieved once total revenues exceed total expenses.

Considered more common and useful as it reports gross profit and separates operating levels.
Follows five key steps to determine profit:
1. $\text{Net Sales} = \text{Sales} - (\text{Sales Returns and Allowances} + \text{Sales Discounts})$
2. $\text{Gross Profit} = \text{Net Sales} - \text{Cost of Goods Sold}$
3. $\text{Profit from Operations} = \text{Gross Profit} - \text{Operating Expenses}$
4. $\text{Non-Operating Activities} = \text{Activities not related to operations (e.g., Interest/Rent Revenue and Expense)}$
5. $\text{Profit} = \text{Profit from Operations} \pm \text{Non-operating Activities}$

Net Sales Calculation:
- Sales: $480,000$
- Less: Sales Returns and Allowances ( $16,700$ ) and Sales Discounts ( $4,300$ ) total $21,000$
- Net Sales: $459,000$
Gross Profit Calculation:
- Net Sales ( $459,000$ ) less Cost of Goods Sold ( $315,000$ ) = $144,000$
Profit from Operations:
- Gross Profit ( $144,000$ ) less Total Operating Expenses ( $114,000$ ) = $30,000$
- Operating expenses include Salaries ( $45,000$ ), Rent ( $19,000$ ), Utilities ( $17,000$ ), Advertising ( $16,000$ ), Depreciation ( $8,000$ ), Delivery ( $7,000$ ), and Insurance ( $2,000$ ).
Final Profit:
- Profit from Operations ( $30,000$ ) plus Net Non-operating Revenues ( $1,600$ ) = $31,600$
- Non-operating items include Interest Revenue ( $1,000$ ), Rent Revenue ( $2,400$ ), and Interest Expense ( $1,800$ ).