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An income statement contains information about a company's revenues and expenses and the resulting
net income.
Net income is computed by deducting all expenses from all revenues. It is the primary measure of the
company's ability to make money.
In this tutorial, we will prepare an income statement of a sole proprietorship service-type business using
information from previous lessons. We will be using the adjusted trial balance from this lesson: Adjusted
Trial Balance.
When you're ready, let's begin.
In the adjusted trial balance above, there is only one revenue account - Service Revenue.
$ 9,850
Note: If there are multiple revenue accounts, you need to list them down and take the sum total of all
revenues.
$ 9,850
$ 3,500
1,800
1,500
900
720
370
8,790
It is a good practice to list the expenses from highest to lowest whenever possible. This allows better
analysis of company expenses.
Drawing a horizontal line means that a mathematical operation has been performed. The line after 370
indicates that we took the sum of all expenses which amounts to 8,790. The total amount of expenses is
aligned with the total amount of revenues.
$ 9,850
$ 3,500
1,800
1,500
900
720
370
8,790
$ 1,060
Again, we drew a single line under 8,790 to indicate that a mathematical operation was made. Two
horizontal lines are drawn under the final amount (1,060 net income). This is known as "double-rule" and
is similar to enclosing the final answers in a box or circle in your math test.
So there you go. The preparation is somewhat easy you just need to be familiar with the different
revenue and expense accounts.