Revenue and Expenses

Jacqui Gagnon

4 Revenue and Expenses

Income Statement Fundamentals

Let's Practice

An eye, marking the start of a see section

First, My Turn!: Hose Ltd. sells and repairs hydraulic and industrial hoses. At 31 December 20X3, it reported Retained Earnings of $680,000. Hose Ltd. has provided you with the following multi-step income statement and has asked you to (a) draft its closing entry at 31 December 20X3, and (b) calculate the revised balance of Retained Earnings after your journal entry.

Hose Ltd. Income Statement (Multi-Step Format)
Sales		1,725,500
Cost of Goods Sold		(756,000)
Gross Profit		969,500

Operating Expenses:
Freight in Expense	(1,000)
Salaries & Wages Expense	(310,000)
Employee Benefits Expense	(74,000)
Office Expenses	(12,000)
Utilities Expense	(23,000)
Other Operating Expenses	(50,000)	(470,000)
Operating Income		499,500

Other Income/Expenses; Gains and Losses:
Gain on Sale of Equipment	10,000
Interest Expense	(15,500)	(5,500)
Income Before Income Taxes		494,000

Income Tax Expense		(124,000)
Net Income		370,000

Closing Entry

Totals are included at the bottom of the entry to check that it balances.

DR		Sales Revenue	1,725,500
	CR	Cost of Goods Sold		756,000
	CR	Freight in Expense		1,000
	CR	Salaries & Wages Expense		310,000
	CR	Employee Benefit Expense		74,000
	CR	Office Expenses		12,000
	CR	Utilities Expense		23,000
	CR	Other Operating Expenses		50,000
DR		Gain on Sale of Equipment	10,000
	CR	Interest Expense		15,500
	CR	Income Tax Expense		124,000
	CR	Retained Earnings		370,000
			1,735,500	1,735,500

Calculation of Retained Earnings

at 31 December 20X3:

Retained Earnings
DR		CR
	680,000	01 Jan
	370,000	31 Dec
	1,050,000	31 Dec

The post-closing balance of Retained Earnings at 31 December 20X3 is $1,050,000. This balance will be on the Statement of Changes in Equity and on the Statement of Financial Position.

A pencil, marking the start of a do section