{"id":158,"date":"2018-04-16T20:56:48","date_gmt":"2018-04-16T20:56:48","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/?post_type=chapter&p=158"},"modified":"2024-04-26T22:19:15","modified_gmt":"2024-04-26T22:19:15","slug":"reporting-expenses","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/chapter\/reporting-expenses\/","title":{"raw":"Reporting Expenses","rendered":"Reporting Expenses"},"content":{"raw":"
\r\n

Learning Outcomes<\/h3>\r\nExplain how expenses are reported on the income statement\r\n\r\n<\/div>\r\nThe\u00a0expenses that are deducted from gross income to arrive at net income of the business are\u00a0reported on the company's income statement. The number of expenses and types of expenses that are reported on the income statement varies widely from business to business. Large corporations such as Ford Motor Company could have pages of expenses on its income statement while a small Mom and Pop retail store may have only a handful. Key to the preparation of an accurate profit and loss statement is the \"matching\" of expenses to the revenues those expenses helped generate.\r\n\r\nThe matching principle is one of the basic underlying guidelines in accounting. The matching principle directs a company to report an expense on its income statement in the same period as the related\u00a0revenues.\r\n\r\nThe matching principle is associated with the\u00a0accrual method of accounting\u00a0and adjusting entries. Without the matching principle, a company might report $10,000 of expenses in January (when it is paid) instead of December (when the expense and the liability are incurred). A retailer's or a manufacturer's\u00a0cost of goods sold\u00a0is another example of an\u00a0expense\u00a0that is matched with sales through a cause and effect relationship.\r\n\r\nLet us examine how this matching principle impacts the Income Statement for a small retail company. The income statement below shows the income and expenses for Mom's Flower Shop without matching revenue to expenses for the month of March, 20XX. The owner paid an entire year's insurance premium of $3,650 on March 1 and deducted the entire amount as an expense from her March revenue. This gave her net income of $6,052 for the month as shown below.\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
Mom's Flower Shop<\/th>\r\n<\/tr>\r\n
Income Statement, March 20XX<\/th>\r\n<\/tr>\r\n<\/thead>\r\n
Sales Revenue<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nCash Sales<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n$24,550<\/td>\r\n<\/tr>\r\n
<\/td>\r\nCredit Sales<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n$850<\/td>\r\n<\/tr>\r\n
Cost of Goods Sold<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nBeginning Inventory, 3\/1\/20XX<\/td>\r\n<\/td>\r\n$85,250<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n+ Purchases<\/td>\r\n<\/td>\r\n<\/td>\r\n$2,750<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nGoods Available for Sale<\/td>\r\n<\/td>\r\n$88,000<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n- Ending Inventory, 3\/31\/20XX<\/td>\r\n<\/td>\r\n$75,725<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nCost of Goods Sold<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n$12,275<\/td>\r\n<\/tr>\r\n
<\/td>\r\nGross Profit<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n$13,125<\/td>\r\n<\/tr>\r\n
Operating Expenses<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nAdvertising<\/td>\r\n<\/td>\r\n<\/td>\r\n$565.00<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nInsurance<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n$3,650.00<\/td>\r\n<\/tr>\r\n
<\/td>\r\nSalaries<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n$1,300.00<\/td>\r\n<\/tr>\r\n
<\/td>\r\nWebsite<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n$165.00<\/td>\r\n<\/tr>\r\n
<\/td>\r\nRepairs & Maintenance<\/td>\r\n<\/td>\r\n$85.00<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nTravel<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n$-<\/td>\r\n<\/tr>\r\n
<\/td>\r\nEntertainment<\/td>\r\n<\/td>\r\n<\/td>\r\n$-<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n<\/td>\r\nTotal Operating Expenses<\/td>\r\n<\/td>\r\n$5,765.00<\/td>\r\n<\/td>\r\n<\/tr>\r\n
General Expenses<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nUtilities<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n$275.00<\/td>\r\n<\/tr>\r\n
<\/td>\r\nTelephone<\/td>\r\n<\/td>\r\n<\/td>\r\n$169.00<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nProfessional Fees<\/td>\r\n<\/td>\r\n<\/td>\r\n$200.00<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nPostage<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n$85.00<\/td>\r\n<\/tr>\r\n
<\/td>\r\nPayroll Taxes<\/td>\r\n<\/td>\r\n<\/td>\r\n$279.00<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n<\/td>\r\nTotal General Expenses<\/td>\r\n<\/td>\r\n$1,008.00<\/td>\r\n<\/td>\r\n<\/tr>\r\n
Other Expenses<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nBad Check Expense<\/td>\r\n<\/td>\r\n<\/td>\r\n$25.00<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nMiscellaneous Expense<\/td>\r\n<\/td>\r\n$275.00<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n<\/td>\r\nTotal Other Expenses<\/td>\r\n<\/td>\r\n$300.00<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n<\/td>\r\nTotal Expenses<\/td>\r\n<\/td>\r\n<\/td>\r\n$7,073.00<\/td>\r\n<\/tr>\r\n
<\/td>\r\n<\/td>\r\nNet Income<\/td>\r\n<\/td>\r\n<\/td>\r\n$6,052.00<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n
Now, let's look at the income statement when the owner recognizes just the insurance expense for the month of March, 20XX.<\/div>\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
Mom's Flower Shop<\/th>\r\n<\/tr>\r\n
Income Statement, March 20XX<\/th>\r\n<\/tr>\r\n<\/thead>\r\n
Sales Revenue<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nCash Sales<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n$24,550<\/td>\r\n<\/tr>\r\n
<\/td>\r\nCredit Sales<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n$\u00a0850<\/td>\r\n<\/tr>\r\n
Cost of Goods Sold<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nBeginning Inventory, 3\/1\/20XX<\/td>\r\n<\/td>\r\n$85,250<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n+ Purchases<\/td>\r\n<\/td>\r\n<\/td>\r\n$2,750<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nGoods Available for Sale<\/td>\r\n<\/td>\r\n$88,000<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n- Ending Inventory, 3\/31\/20XX<\/td>\r\n<\/td>\r\n$75,725<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nCost of Goods Sold<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n$12,275<\/td>\r\n<\/tr>\r\n
<\/td>\r\nGross Profit<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n$13,125<\/td>\r\n<\/tr>\r\n
Operating Expenses<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nAdvertising<\/td>\r\n<\/td>\r\n<\/td>\r\n$565.00<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nInsurance<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n$304.00<\/td>\r\n<\/tr>\r\n
<\/td>\r\nSalaries<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n$1,300.00<\/td>\r\n<\/tr>\r\n
<\/td>\r\nWebsite<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n$165.00<\/td>\r\n<\/tr>\r\n
<\/td>\r\nRepairs & Maintenance<\/td>\r\n<\/td>\r\n$85.00<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nTravel<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n$\u00a0-<\/td>\r\n<\/tr>\r\n
<\/td>\r\nEntertainment<\/td>\r\n<\/td>\r\n<\/td>\r\n$-<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n<\/td>\r\nTotal Operating Expenses<\/td>\r\n<\/td>\r\n$2,419.00<\/td>\r\n<\/td>\r\n<\/tr>\r\n
General Expenses<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nUtilities<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n$275.00<\/td>\r\n<\/tr>\r\n
<\/td>\r\nTelephone<\/td>\r\n<\/td>\r\n<\/td>\r\n$169.00<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nProfessional Fees<\/td>\r\n<\/td>\r\n<\/td>\r\n$200.00<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nPostage<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n$85.00<\/td>\r\n<\/tr>\r\n
<\/td>\r\nPayroll Taxes<\/td>\r\n<\/td>\r\n<\/td>\r\n$279.00<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n<\/td>\r\nTotal General Expenses<\/td>\r\n<\/td>\r\n$1,008.00<\/td>\r\n<\/td>\r\n<\/tr>\r\n
Other Expenses<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nBad Check Expense<\/td>\r\n<\/td>\r\n<\/td>\r\n$25.00<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\nMiscellaneous Expense<\/td>\r\n<\/td>\r\n$275.00<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n<\/td>\r\nTotal Other Expenses<\/td>\r\n<\/td>\r\n$300.00<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n<\/td>\r\nTotal Expenses<\/td>\r\n<\/td>\r\n<\/td>\r\n$3,727.00<\/td>\r\n<\/tr>\r\n
<\/td>\r\n<\/td>\r\nNet Income<\/td>\r\n<\/td>\r\n<\/td>\r\n$9,398.00<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nAs you can see, recognizing just the portion of insurance that was \"used\" for March, 20XX increases her net income to $9,398.00 and is a much more accurate representation of the financial performance of the business during the month.\r\n\r\nSince net income flows to the statement of owners' equity, it is important that managers understand the importance of this matching principal since both internal and external stakeholders will use the company's financial statements for decision making purposes.","rendered":"
\n

Learning Outcomes<\/h3>\n

Explain how expenses are reported on the income statement<\/p>\n<\/div>\n

The\u00a0expenses that are deducted from gross income to arrive at net income of the business are\u00a0reported on the company’s income statement. The number of expenses and types of expenses that are reported on the income statement varies widely from business to business. Large corporations such as Ford Motor Company could have pages of expenses on its income statement while a small Mom and Pop retail store may have only a handful. Key to the preparation of an accurate profit and loss statement is the “matching” of expenses to the revenues those expenses helped generate.<\/p>\n

The matching principle is one of the basic underlying guidelines in accounting. The matching principle directs a company to report an expense on its income statement in the same period as the related\u00a0revenues.<\/p>\n

The matching principle is associated with the\u00a0accrual method of accounting\u00a0and adjusting entries. Without the matching principle, a company might report $10,000 of expenses in January (when it is paid) instead of December (when the expense and the liability are incurred). A retailer’s or a manufacturer’s\u00a0cost of goods sold\u00a0is another example of an\u00a0expense\u00a0that is matched with sales through a cause and effect relationship.<\/p>\n

Let us examine how this matching principle impacts the Income Statement for a small retail company. The income statement below shows the income and expenses for Mom’s Flower Shop without matching revenue to expenses for the month of March, 20XX. The owner paid an entire year’s insurance premium of $3,650 on March 1 and deducted the entire amount as an expense from her March revenue. This gave her net income of $6,052 for the month as shown below.<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Mom’s Flower Shop<\/th>\n<\/tr>\n
Income Statement, March 20XX<\/th>\n<\/tr>\n<\/thead>\n
Sales Revenue<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nCash Sales<\/td>\n<\/td>\n<\/td>\n<\/td>\n$24,550<\/td>\n<\/tr>\n
<\/td>\nCredit Sales<\/td>\n<\/td>\n<\/td>\n<\/td>\n$850<\/td>\n<\/tr>\n
Cost of Goods Sold<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nBeginning Inventory, 3\/1\/20XX<\/td>\n<\/td>\n$85,250<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\n+ Purchases<\/td>\n<\/td>\n<\/td>\n$2,750<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nGoods Available for Sale<\/td>\n<\/td>\n$88,000<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\n– Ending Inventory, 3\/31\/20XX<\/td>\n<\/td>\n$75,725<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nCost of Goods Sold<\/td>\n<\/td>\n<\/td>\n<\/td>\n$12,275<\/td>\n<\/tr>\n
<\/td>\nGross Profit<\/td>\n<\/td>\n<\/td>\n<\/td>\n$13,125<\/td>\n<\/tr>\n
Operating Expenses<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nAdvertising<\/td>\n<\/td>\n<\/td>\n$565.00<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nInsurance<\/td>\n<\/td>\n<\/td>\n<\/td>\n$3,650.00<\/td>\n<\/tr>\n
<\/td>\nSalaries<\/td>\n<\/td>\n<\/td>\n<\/td>\n$1,300.00<\/td>\n<\/tr>\n
<\/td>\nWebsite<\/td>\n<\/td>\n<\/td>\n<\/td>\n$165.00<\/td>\n<\/tr>\n
<\/td>\nRepairs & Maintenance<\/td>\n<\/td>\n$85.00<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nTravel<\/td>\n<\/td>\n<\/td>\n<\/td>\n$-<\/td>\n<\/tr>\n
<\/td>\nEntertainment<\/td>\n<\/td>\n<\/td>\n$-<\/td>\n<\/td>\n<\/tr>\n
<\/td>\n<\/td>\nTotal Operating Expenses<\/td>\n<\/td>\n$5,765.00<\/td>\n<\/td>\n<\/tr>\n
General Expenses<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nUtilities<\/td>\n<\/td>\n<\/td>\n<\/td>\n$275.00<\/td>\n<\/tr>\n
<\/td>\nTelephone<\/td>\n<\/td>\n<\/td>\n$169.00<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nProfessional Fees<\/td>\n<\/td>\n<\/td>\n$200.00<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nPostage<\/td>\n<\/td>\n<\/td>\n<\/td>\n$85.00<\/td>\n<\/tr>\n
<\/td>\nPayroll Taxes<\/td>\n<\/td>\n<\/td>\n$279.00<\/td>\n<\/td>\n<\/tr>\n
<\/td>\n<\/td>\nTotal General Expenses<\/td>\n<\/td>\n$1,008.00<\/td>\n<\/td>\n<\/tr>\n
Other Expenses<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nBad Check Expense<\/td>\n<\/td>\n<\/td>\n$25.00<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nMiscellaneous Expense<\/td>\n<\/td>\n$275.00<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\n<\/td>\nTotal Other Expenses<\/td>\n<\/td>\n$300.00<\/td>\n<\/td>\n<\/tr>\n
<\/td>\n<\/td>\nTotal Expenses<\/td>\n<\/td>\n<\/td>\n$7,073.00<\/td>\n<\/tr>\n
<\/td>\n<\/td>\nNet Income<\/td>\n<\/td>\n<\/td>\n$6,052.00<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
Now, let’s look at the income statement when the owner recognizes just the insurance expense for the month of March, 20XX.<\/div>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Mom’s Flower Shop<\/th>\n<\/tr>\n
Income Statement, March 20XX<\/th>\n<\/tr>\n<\/thead>\n
Sales Revenue<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nCash Sales<\/td>\n<\/td>\n<\/td>\n<\/td>\n$24,550<\/td>\n<\/tr>\n
<\/td>\nCredit Sales<\/td>\n<\/td>\n<\/td>\n<\/td>\n$\u00a0850<\/td>\n<\/tr>\n
Cost of Goods Sold<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nBeginning Inventory, 3\/1\/20XX<\/td>\n<\/td>\n$85,250<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\n+ Purchases<\/td>\n<\/td>\n<\/td>\n$2,750<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nGoods Available for Sale<\/td>\n<\/td>\n$88,000<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\n– Ending Inventory, 3\/31\/20XX<\/td>\n<\/td>\n$75,725<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nCost of Goods Sold<\/td>\n<\/td>\n<\/td>\n<\/td>\n$12,275<\/td>\n<\/tr>\n
<\/td>\nGross Profit<\/td>\n<\/td>\n<\/td>\n<\/td>\n$13,125<\/td>\n<\/tr>\n
Operating Expenses<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nAdvertising<\/td>\n<\/td>\n<\/td>\n$565.00<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nInsurance<\/td>\n<\/td>\n<\/td>\n<\/td>\n$304.00<\/td>\n<\/tr>\n
<\/td>\nSalaries<\/td>\n<\/td>\n<\/td>\n<\/td>\n$1,300.00<\/td>\n<\/tr>\n
<\/td>\nWebsite<\/td>\n<\/td>\n<\/td>\n<\/td>\n$165.00<\/td>\n<\/tr>\n
<\/td>\nRepairs & Maintenance<\/td>\n<\/td>\n$85.00<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nTravel<\/td>\n<\/td>\n<\/td>\n<\/td>\n$\u00a0–<\/td>\n<\/tr>\n
<\/td>\nEntertainment<\/td>\n<\/td>\n<\/td>\n$-<\/td>\n<\/td>\n<\/tr>\n
<\/td>\n<\/td>\nTotal Operating Expenses<\/td>\n<\/td>\n$2,419.00<\/td>\n<\/td>\n<\/tr>\n
General Expenses<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nUtilities<\/td>\n<\/td>\n<\/td>\n<\/td>\n$275.00<\/td>\n<\/tr>\n
<\/td>\nTelephone<\/td>\n<\/td>\n<\/td>\n$169.00<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nProfessional Fees<\/td>\n<\/td>\n<\/td>\n$200.00<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nPostage<\/td>\n<\/td>\n<\/td>\n<\/td>\n$85.00<\/td>\n<\/tr>\n
<\/td>\nPayroll Taxes<\/td>\n<\/td>\n<\/td>\n$279.00<\/td>\n<\/td>\n<\/tr>\n
<\/td>\n<\/td>\nTotal General Expenses<\/td>\n<\/td>\n$1,008.00<\/td>\n<\/td>\n<\/tr>\n
Other Expenses<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nBad Check Expense<\/td>\n<\/td>\n<\/td>\n$25.00<\/td>\n<\/td>\n<\/tr>\n
<\/td>\nMiscellaneous Expense<\/td>\n<\/td>\n$275.00<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
<\/td>\n<\/td>\nTotal Other Expenses<\/td>\n<\/td>\n$300.00<\/td>\n<\/td>\n<\/tr>\n
<\/td>\n<\/td>\nTotal Expenses<\/td>\n<\/td>\n<\/td>\n$3,727.00<\/td>\n<\/tr>\n
<\/td>\n<\/td>\nNet Income<\/td>\n<\/td>\n<\/td>\n$9,398.00<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

As you can see, recognizing just the portion of insurance that was “used” for March, 20XX increases her net income to $9,398.00 and is a much more accurate representation of the financial performance of the business during the month.<\/p>\n

Since net income flows to the statement of owners’ equity, it is important that managers understand the importance of this matching principal since both internal and external stakeholders will use the company’s financial statements for decision making purposes.<\/p>\n\n\t\t\t

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Candela Citations<\/h3>\n\t\t\t\t\t
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CC licensed content, Original<\/div>