Financial Statements with Inventory

The statement of owner's equity and the statement of cash flows are the same for merchandising and service companies. Except for the inventory account, the balance sheet is also the same. But a merchandising company's income statement includes categories that service enterprises do not use. A single‐step income statement for a merchandising company lists net sales under revenues and the cost of goods sold under expenses.

Music World Income Statement For the Year Ended June 30,20X3

Revenues

    Net Sales

$1,172,000

    Interest Income

7,500

    Gain on Sale of Equipment

1,500

      Total Revenues

1,181,000

Expenses

    Cost of Goods Sold

$596,600

    Selling Expenses

177,000

    General and Administrative Expenses

152,900

    Interest Expense

18,000

      Total Expenses

944,500

Net Income

$ 236.500

Although the single‐step format is easier to read than the multiple‐step format, most companies produce a multiple‐step income statement, which clearly identifies each step in the calculation of net income or net loss.

Music World Income Statement For the Year Ended June 30,20X3

    Sales

$1,240,000

    Less: Sates Returns and Allowances

$65,000

        Sales Discounts

3,000

68,000

    Net Sates

1,172,000

Cost of Goods Sold

    Inventory, July 1,20X2

37,000

    Purchases

$610,000

    Less: Purchases Returns and Allowances

$9,000

        Purchases Discounts

8,000

17,000

    Net Purchases

593,000

    Add: Freight-In

5,600

    Cost of Goods Purchased

598,600

    Cost of Goods Available for Sate

635,600

    Less: Inventory, June 30,20X3

39,000

      Cost of Goods Sold

596,600

Gross Profit

575,400

Operating Expenses

    Selling Expenses

      Sales Salaries Expense

120,000

      Sales Commission Expense

21,000

      Delivery Expense

15,000

      Store Rent Expense

12,000

      Depredation Expense-Store Equipment

9,000

        Total Selling Expenses

177,000

    General and Administrative Expenses

      Office Salaries Expense

140,000

      Insurance Expense

6,000

      Depredation Expense-Office Equipment

5,000

      Office Rent Expense

1,200

      Office Supplies Expense

700

        Total General and Administrative Expenses

152,900

          Total Operating Expenses

329,900

Operating Income

245,500

Other Income/(Expense), Net

    Interest Income

7,500

    Gain on Sate of Equipment

1,500

    Interest Expense

(18,000)

      Other Income/(Expense), Net

(9,000)

Net Income

$236,500