Betty’s Bakery

The Income Statement - continued Work to be Performed

The Income Statement is located in Step 5 Workpapers (5 7). Remove it from the manual in order to work on it. Review and become familiar with the format and information to be entered.

1. Enter the month end date and year right below INCOME STATEMENT.

2. From the Trial Balance enter the account balances for each income and expenses line item

3. Add and enter sub-total amounts for Total Sales and Total Expenses

4. Subtract Total Expenses from Total Sales to calculate Net Income or (Loss) and enter on the double line at the bottom This amount should be the same as shown on the Trial Balance.

5. Calculate and enter each line item’s percentage (one decimal point) in the column at the right by dividing every line amount by Total Sales. i.e.; Every line item is a percentage of sales.

6. Enter the Net Income or (Loss) amount on the Retained Earning line of the Balance Sheet

This amount is needed in order to balance the Balance Sheet.

Financial Ratio Analysis

Overview

Financial statement ratio analysis is a technique used to evaluate a company's financial position and operating performance by comparing key financial ratios derived from its Balance Sheet and Income Statement.

Ratio analysis involves calculating and interpreting ratios that relate to the company's profitability, liquidity, solvency, and efficiency.

There are many financial ratios utilized in the finance industry Four basic financial ratios are: liquidity, efficiency, profitability, and leverage ratios.

• Liquidity ratios measure its ability to meet its short-term obligations.

• Profitability ratios measure a company's ability to generate income.

• Efficiency ratios measure how effectively the company uses its assets to generate revenue. Leverage ratios measure the relationship between the creditor’s rights to assets compared to the owner’s rights to rights, i.e., who owns the majority of the assets.