Preparing Income Statements

Video Transcript

"An income statement is one of the financial statements required by GAP and it's a picture of a company's earnings performance during a period of time. Now, underlying in each of the lined items that you see on an income statement will be account balances or general ledger account balances, and they will reflect the transactions throughout the month. For example, the revenue account of the GL level will of course reflect sales of your products or services less any kind of discounts or allowances, then at the end of the accounting period you total that all up and it will eventually roll into your income statement line item, and similar process happens for cost of goods sold which is your next major line item, and the difference between these two of course is your gross margin. The next section in operating income and expense would have been calculated similarly by rolling up all of the individual detail transactions at the general ledger account level. Your next major sub-total will be operating income or income before taxes then the next major line item on your income statement will be the provision for income taxes and then finally you'll arrive at net income."