Accounting: The Language of Business (Part 29)

Accounting was the course that helped me more than anything.

Julian Robertson

Accounting for Merchandising Businesses

(Part C)

by

Charles Lamson

Single-Step Income Statement

An alternative form of income statement is the single step income statement. As shown in Exhibit 3, the income statement for NetSolutions deducts the total of all expenses in one step from the total of all revenues.

The single-step form emphasizes total revenues and total expenses as the factors that determine net income. A criticism of the single step form is that such amounts as gross profit and income from operations are not readily available for analysis.

Statement of Owner's Equity

The statement of owner's equity for NetSolutions is shown in Exhibit 4. This statement is prepared in the same manner that we described previously for a service business in part 8.

Balance Sheet

As we discussed and Illustrated in previous posts, the balance sheet may be presented with assets on the left hand side and the liabilities and owner's equity on the right hand side. This form of the balance sheet is called the account form. The balance sheet may also be presented in a downward sequence in three sections. This form of balance sheet is called the report form. The report form of balance sheet for NetSolutions is shown in Exhibit 5. In this balance sheet, note that merchandise inventory at the end of the period is reported as a current asset and that the current portion of the note payable is $5,000. 

EXHIBIT 5 Report Form of Balance Sheet

*WARREN, REEVE, & FESS, 2005, ACCOUNTING, 21ST ED., PP. 236-237*

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