Question

The following income statement was prepared by an office clerk hired for July. As the accounting supervisor, you recognize that it is incorrect and prepare a corrected multi-step income statement.

Demo Sales
Income Statement
For Month Ended July 31, 2017
Sales			$	562,740
Accounts receivable				37,300
Unearned sales				18,120
Net sales			$	618,160
Operating expenses:
Accumulated depreciation, equipment	$	30,300
Advertising expense		14,120
Cost of goods sold		395,200
Depreciation expense, equipment		3,120
Insurance expense		2,560
Interest expense		1,820
Interest payable		280
Jen Conway, withdrawals		14,060
Office supplies		9,600
Prepaid insurance		15,200
Prepaid rent		25,300
Rent expense		5,360
Salaries payable		175,200
Sales discounts		2,920		695,040
Loss			$	76,880

Answer 1

Solution:-

Income statement :-

Demo Sales
Income Statement
For Month Ended July 31, 2017
Particulars	Amount	Amount
Sales		$562,740
Sales discount		$2,920
Cost of goods sold		$395,200
Gross profit		= 562,740 - 2,920 - 395,200 = $164,620
Operating expenses :
Selling & Administrative expenses :
Advertisement expeses	$14,120
Depreciation expenses	$3,120
Insurance expenses	$2,560
Rent expenses	$5,360
Total operating expenses		= $14,120 + $3,120 + $2,560 + $5,360 = $25,160
Profit from operation		= 164,620 - 25,160 = $139,460
Other revenues and expenses :
Interest expenses		$1,820
Net income		= $139,460 - 1,820 = $ 137,640