Chapter 1 Problem 1: Prepare An Income Statement

Chapter1problem 1 Prepare An Income Statementthe Following Informati

Prepare an income statement based on the following data for Kay's Beauty Salon for 2021: supplies expense of $8,448, product sales revenue of $22,356, utilities expense of $6,555, salaries expense of $35,000, service revenue of $99,113, and rent expense of $60,000. The purpose is to demonstrate understanding of analyzing accounting information and preparing a financial statement. After analyzing the data, prepare an income statement for the year ending December 31, 2021, following the formatting guidance provided in Chapter 1 of the textbook.

Paper For Above instruction

The preparation of an income statement is a fundamental aspect of financial accounting that summarizes a company's revenues and expenses over a specific period, resulting in the net income or loss for that period. In the context of Kay’s Beauty Salon for the year 2021, it offers an opportunity to apply the principles of financial reporting by accurately categorizing and aggregating financial data to reflect the company’s financial performance.

To begin, it is essential to distinguish between different types of revenues and expenses. Kay’s Beauty Salon earned revenue from two main sources: product sales and service provision. Product sales revenue of $22,356 and service revenue of $99,113 should be summed to calculate total revenues. Accordingly, total revenues amount to $121,469. This comprehensive revenue figure provides a clear picture of the gross income generated by the salon’s operations.

Next, the expenses incurred during the year must be classified and summed. The expenses provided include supplies expense of $8,448, utilities expense of $6,555, salaries expense of $35,000, and rent expense of $60,000. Adding these expenses results in total operating expenses of $110,003. It is important to note that these expenses are directly related to the salon’s operations and thus are deducted from total revenue to determine the net income.

The income statement arrangement typically presents revenues at the top, followed by expenses, and concludes with the calculation of net income. By deducting total expenses from total revenues, the net income for Kay’s Beauty Salon can be determined:

• Total Revenues = $121,469
• Total Expenses = $110,003
• Net Income = $11,466

Therefore, the income statement for Kay's Beauty Salon for the year ended December 31, 2021, would appear as follows:

This income statement succinctly summarizes Kay’s Beauty Salon’s financial performance for 2021, illustrating a profit of $11,466. Such statements are crucial for internal decision-making, external financial reporting, and maintaining transparency with stakeholders. Following the proper format ensures clarity, comparability, and adherence to accounting standards.

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