Recording Income Statement Transactions - Spreadsheet

Recording Income Statement Transactions – Spreadsheet

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.

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