LessononeLessonThreeLessonFourIncomeStatementIncomestatementisdesignedtoportraytheoperatingresultsforaperiodoftime.LessonFourIncomeStatementAnincomestatementisasummaryoftherevenuesandtheexpensesofabusinessentityforaspecificperiodoftime,suchasamonthorayear.LessonFourIncomeStatementInbusiness,revenueisincomethatacompanyreceivesfromitsnormalbusinessactivities,usuallyfromthesaleofgoodsandservicestocustomers.Inmanycountries,suchastheUnitedKingdom,revenueisreferredtoasturnover.Somecompaniesreceiverevenuefrominterest,dividendsorroyaltiespaidtothembyotherLessonFourIncomeStatementInaccounting,expensehasaveryspecificmeaning.Itisanoutflowofcashorothervaluableassetsfromapersonorcompanytoanotherpersonorcompany.Thisoutflowofcashisgenerallyonesideofatradeforproductsorservicesthathaveequalorbettercurrentorfuturevaluetothebuyerthantotheseller.Technically,anexpenseisaneventinwhichanassetisuseduporaliabilityisincurred.Intermsoftheaccountingequation,expensesreduceowners'equity.LessonFourIncomeStatementRevenueCostofgoodssoldOperatingexpensesLessonFourIncomeStatementGrossProfitNetProfit

NetSales

GrossSales—

SalesReturnsandAllowances

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SalesDiscountNetSales—CostofGoodsSoldGrossProfit—

OperatingExpensesLessonFourIncomeStatementSalesSalesReturns&AllowancesNetSales-=?LessonFourIncomeStatementTextTextCostofgoodssoldNetPurchasesBeginninginventory+Endinginventory-TransportationIn(PurchasesDiscounts)(PurchasesReturns&Allowance)PurchasesLessonFourIncomeStatementNetSalesGrossProfitonSalesNetIncomefortheperiodLess:costofgoodssoldLess:OperatingexpensesLessonFourIncomeStatementExpensesOperatingExpensesOtherExpensesSellingExpensesAdministrationExpensesInterestExpensesExtraordinaryItemLessonFourIncomeStatementDouknowtherelationshipbetweentheIS&BS?Thenetprofitistransferredtothebalancesheetofthebusinessaspartoftheproprietor’scapital.…….Isee.LessonFourIncomeStatementProfitandlossaccountfortheyearended…

￡mTurnoverXCostofsales(X)GrossprofitXDistributioncosts(X)Administrativeexpenses(X)OperatingprofitXInterestpayable(X)InvestmentincomeXProfitonordinaryactivitiesbeforetaxationXTaxation(X)ProfitonordinaryactivitiesaftertaxationXExtraordinaryitems(X)ProfitforthefinancialyearXDividendspaidandproposed(X)RetainedprofitforthefinancialyearXUKformatLessonFourIncomeStatementIncomestatementfortheyearended...$m

RevenueXCostofsales(X)GrossprofitXDistributioncosts(X)Administrativeexpenses(X)ProfitfromoperationsX

Financecost(X)InvestmentincomeXProfitbeforetaxXIncometaxexpense(X)NetprofitfromordinaryactivitiesXExtraordinaryitems(X)NetprofitfortheyearX

InternationalFormatiiiiiiGrossprofit**Grossprofit=saleslesscostofsalesPlusanyotherincomefromsourcesotherthanthesalesofgoodsMinusotherexpensesofthebusiness,notincludedinthecostofgoodssoldNetprofitis:LessonFourIncomeStatementIncomestatementispreparedtopresenttheoperatingresultsofanorganizationforaparticularperiod.

LessonFour—ExerciseaWhatarethepurposeofanincomestatement?Theyarerevenue,costofgoodssoldandoperatingexpenses.LessonFour—Exerciseb.Whatarethemajorcategoriesoftheincomestatementforamerchandisingcompany?Grosssales=quantities×sellingpriceperunitLessonFour—ExerciseNetsales=grosssales－salesreturnsandallowances－salesdiscountsc.Differentiatethegrosssalesandnetsales.Costofgoodsavailableforsale=beginninginventory+netpurchases+transportationinLessonFour—Exercised.Differentiatethecostofgoodsavailableforsalesandcostofgoodssold.Costofgoodssold=Costofgoodsavailableforsale–endinginventorytransportationinlistundertheitem“costofgoodssold”LessonFour—Exercisee.Explaintheappropriatetreatmentoftheitems“transportationin”and“transportationout”intheincomestatement.transportationout

listundertheitem“sellingExpenses”Acompany’sshort-termliquidityreferstoitsabilitytomeetshort-termobligations.Itcanbemeasuredintermsoffollowingratios:currentratioandquickratio.LessonFour—ExercisefWhatisthe“short-termliquidity”?Andhowtomeasureit?LessonFour—Exercise(g)g.Identifythefollowingassellingoradministrativeexpenseitems.1)Salessalariesexpense2)Officesalariesexpense3)Depreciationfordeliveryequipment4)Depreciationforofficeequipment5)Advertisingexpense6)Utilitiesexpense7)Suppliesexpense8)Transportationout9)RentexpenseLessonFour—Exerciseg.SellingE