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Record Income Statement Transactions on a Spreadsheet

1) Key Things To Know 4) Easy Practice Test
2) Self Test 5) Medium Practice Test
3) Practice as You Learn 6) Quick Study Sheet

 

 

Key Things to Know

 Transaction:  An exchange of something for something else. 
 
Common Transactions:

 
Revenues:   You provide something (earn) and receive something in exchange
 
                You provide goods or services now and receive an asset now
                        Earn – revenue                    Get - Cash
 
                You provide goods or services now and receive an asset later
                        Earn – revenue                    Get – Receivable (accounts, interest, rent)
 
 
Expenses:    You are provided something and give up something in order to get it
 
                You receive the service now and give up an asset now to pay for it
                        Incur – Expense                   Give up - Cash
 
                You receive the service now and give up an asset later to pay for it
                        Incur – Expense                   Give up – liability – owe for it (_____payable)
 
                 You use up an asset as part of operating the business
                        Incur – Expense                 Give up – asset (prepaid, inventory, supplies,
                                                                                                       depreciation)
 
 
When recording transactions:
 
            1) determine if a good or service was provided and the account name
                 used for it
                    - sales – provide goods to a customer
                    - revenues or fees – provide services to a customer
                    - revenues – provide the use of an asset to someone – rent, interest
 
            2) determine if something was provided to the company
                    - expense – name it what you paid for – “_______ expense”
                       
            3)  determine if an asset was used up in day to day business
                    - provide inventory to a customer:   “cost of goods sold”
                    - use up prepaids or supplies:   “_______ expense”, name it what was used
                   - use a long term asset:   “depreciation expense”
 
 
 
 
Common account names used:
 
Revenues – What you earn from providing goods and services
 
Sales
Service Fees
Service Revenues
Interest Income
Rent Income
Dividend Income
 
 
Expenses     -  What is provided to the company that must be paid for
                        -  Use up an asset to provide goods and services as part of
                            day to day business
 
Cost of Goods Sold
Insurance Expense
Rent Expense
Depreciation Expense
Wage Expense
Salary Expense
Supplies Expense
Interest Expense
Income Tax Expense
 
 
There are 5 general transactions that occur over and over that impact the income statement –   what you earn and what you have to pay for and use up in order to earn 
 
Important:   When you record revenues you must also increase an asset
           
                      When you record an expense you must also reduce an asset
                          or increase a liability
 
            5 things that happen repeatedly:
 
            1)  Provide goods or services (revenue +) and receive cash now (cash +)
            2)  Provide goods or services (revenue +) and get paid later (receivable +)
            3)  Receive a service (expense -) and pay cash now (cash -)
            4)  Receive a service (expense -) and pay cash later (payable +)
            5)  Use an asset (expense -)  and (asset - or accumulated depreciation -)
           
            Once you have identified the kind of transaction that has occurred you must
             name the account’s that are changed by the transaction – see list above
 
Owner’s Equity included retained earnings which includes profits, which come from revenues and expenses.    Revenues and expenses are part of owner’s equity.
 
 
  Determine what happened in the transaction and write the account name
  that is involved in the transaction at the top of a column and put a  positive number if it 
  increased or a negative number if it decreased in the column below the account name:
 
            Example:  3 transactions occurred.  This is not the first year of business and the
           company has beginning balances for assets, liabilities, and retained earnings.
 
            1)  The company sold inventory that cost $10,000 to a customer for $14,000.
                     The customer will pay in 30 days.
            2)  Employees worked and the company paid them $1,100
            3)  Received a utility bill for $220 for this month.

  Assets: = Liabilities +
 
 Accounts
Accts
 
Cash
Receivable
Inventory
Payable
 
Beg
$10,000
$5,000
$22,000
$8,000
1)
$14,000
(10,000)
=
2)
(1,100)
=
3)
=
220
 
 
Total
$8,900
$19,000
$12,000
=
$8,220

 
  + Owner's Equity: Includes Revenues less Expenses as part of Retained Earnings
 
(Cost of
( Salaries
(Utilities
 
R. E.
Sales
Goods Sold)
Expense)
Expense)
 
Beg
$29,000
1)
14,000
(10,000)
2)
(1,100)
3)
(220)
 
 
Total
$14,000
($10,000)
($1,100)
($220)

 
          Total Assets = Total Liabilities + Owner’s Equity (includes Revenues & Expenses)
                $39,900   =           $8,220    +  $29,000  +  $2,680
 
 
              Revenues and expenses do not have a beginning balance, amounts are for
                 this period only.
                                    Revenues are always a positive balance
                                    Expenses are always a negative balance          

          


 

 

 

 
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