Basic Accounting - Income Statement

Mr. Ram ( Not real name ) is M.Tech. in electronics science. Now, he is learning basic accounting from accounting education tutorials. He asks how can income statement show net profit or loss of business after some time?

Because he is from science background, so he can not understand very simple terms of basic accounting without explanation. So, this tutorial is basically such new learners.

Income statement has two parts. In one part, we show all the revenue items whether these revenues have received in cash or not. In second part, we show all the expenses whether these expenses have paid in cash or not.

Dear Mr. Ram, you should understand, income statement is not the report of receiving and paying of cash. It is that report which shows the comparison of different revenues and expenses. Because Mr. Ram is engineer in electronics and his duty is to make electronic product. So, we can explain what revenue and expenses  items may be in electronics business.
1. Revenue Items in Electronics Business

Main revenue may be from sale of electronics product. Suppose samsung electronics company sells digital camera of Rs. 9000. But it is not necessary that all cameras are sold on cash basis. It means sometime cameras may be sold on credit. So, both cash sale and credit sale will be the revenue item of such business.

Suppose, samsung company sold 1000 cameras up to Dec. 2010 and out of 100 cameras had been sold on credit. But we can revenue of Rs. 90,00,000. Now we record different expenses of such business.

2. Expenses of Electronics Business

Suppose raw material cost of above sold items is Rs. 10,00,000 and salary and other expenses are Rs. 30,00,000 in which Rs. 5,00,000 is unpaid salary. But it will be the part of outstanding expenses. Difference of this will be 60,00,000, this will be net profit which we can find from above comparison in income statement.

Purposes of making income statement is to report the revenues earned by the company and (2) report the expenses incurred by the company. The purpose of the income statement is to show a company's net profit or loss  during a specific period of time.






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Accounting Education: Basic Accounting - Income Statement
Basic Accounting - Income Statement
Accounting Education
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