The Income Statement summarizes your business’s sales and expenses to show profitability.
The first section summarizes income information. Layaways, and repairs that have not been paid for in full are NOT included. Neither are special orders that have not been picked up whether or not they have been paid for. Sales are broken down into Merchandise Sales and Repair & Custom Work sales. The program breaks them down by looking at the class code for each sale to see if that class code is classified for repairs. The gross sales are shown first then sales tax is itemized and deducted. The commission that credit card companies charge is also deducted to yield the NET SALES.
Next, the Cost of Goods Sold is calculated as follows:
addInventory purchases from the received invoices file
addFreight from the received invoices file
subtractReturns to vendors
this gives the total Goods Available for Sale. The Cost of Goods Sold, then is:
addTotal Goods Available for Sale
Freight charges are included in the cost of goods sold in the month the merchandise is received, not when the merchandise is sold. The discounts taken are subtracted from the cost of goods sold in the month the discounts are taken, (when they are subtracted from a payment check) not when the merchandise is sold.
The cost of goods sold is NOT calculated on an item-by-item basis; it’s an overall calculation. Therefore, if you make inventory adjustments due to breakage or shrinkage, those adjustments are included in the cost of goods sold, whereas they would not appear when calculating the cost of each item sold. Freight and discounts also would not appear when calculating the cost of each item sold.
Inventory purchases are calculated by adding up the invoices received that month from vendors who are classified as suppliers of merchandise, i.e., those who have expense codes 500–599. Invoices for other vendors, such as utilities vendors, would not have expense codes 500–599 and therefore would not be included in the cost of goods purchased. Invoices with expense codes 500–599 are included whether or not you entered the invoice along with itemized merchandise from the Inventory Menu.
If the Opening Inventory figure is wrong, (perhaps because you had not yet accurately entered all your inventory for the time period preceding the time-frame of the income statement that you are printing) you can fix it by choosing Enter/Edit Chart of Accounts or Browse the Chart of Accounts from the Chart of Accounts Maintenance Menu.
GROSS PROFIT*} The gross profit is the Net Sales minus the Cost of Goods Sold.
OPERATING EXPENSES*} Expenses from the check book file with expense codes 600–699 are listed and totaled under the Operating Expenses. Also included are General Journal entries, such as GJ entries to record unpaid tax expenses, depreciation expenses, etc. Remember, expenses for taxes-payable and loan principal payable should be posted to the appropriate liability account and will not appear as expenses for that month. The interest portion of loan payments, however, should be posted as an operating expense for that month.
Operating Expenses are included in this section in the month that you post the check to pay them, not necessarily in the month the bill is received.
OTHER INCOME*} Interest and other penalties that you charge your accounts receivable customers on the end-of-month statements will appear under this Other Income category.
NET INCOME*} The Net Income is the Gross Profit minus Operating Expenses plus Other Income. This is the same as the Net Sales plus Other Income minus the Cost of Goods Sold minus Operating Expenses.