The intent of this
paper is to prepare an income statement for Nybrostrand Company in good format,
compare the income or loss compare to the original income statements and
explain the importance of the matching concept.
1. Income statement for Nybrostrand Company.
Sheet from 01January to 31-December-2011
Total Current Assets
Total Fixed Assets
Liabilities & Shareholdersâ Equity:
Total Current Liabilities
Long Term Debt
Total Long-Term Liabilities
Paid in Capital
Total Shareholderâs Equity
Total Liabilities & Shareholder’s Equity
2. There is a huge
difference in the original report compared to the second statement since the
income statement became inaccurate due to the error made by the bookkeeper
which is contrary to the guidelines established by the generally accepted
accounting principles (GAAP).
The expenses of an
enterprise should be matched with the revenues of the reporting period so as to
show the companyâs correct profitability in the reporting period. It is based
on the cause and effect relationship. The sale of goods leads to the cost of
goods sold and the sales commission expense. If the cost incurred is not
related to the revenue or to a particular accounting period, then it should be
recorded immediately. Example â Advertising Expense and Research and
Development expenditure is to be recorded immediately because the measurement
of future economic benefit cannot be made.
The Income Statement and Balance Sheet are used to report the
financial results of the company. The income statement gives information about
the revenues and expenses of a business so that the Net Income earned can be
determined. The Balance Sheet provides the details about the asset, liabilities
and shareholderâs equity of the business enterprise. It shows the overall
results of the business. The company is able to earn income of $150,150 for the
year ended 31st December, 2011. The proportion of shareholders
equity is greater than the proportionof
liabilities in the capital structure of the company.
retained earnings are calculated by adding the net income of $150,150 and
previous retained earnings balance of $108,550. The previous balance of
retained earnings is calculated by difference of debit and credit side of trial
balance. ($959,550 – $851,000).
According to www.finance-lib.com (n.d.),
a .businessdictionary.com/definition/fundamental.html”>fundamental .businessdictionary.com/definition/concept.html”>concept of .businessdictionary.com/definition/accrual-basis-accounting.html”>accrual basis accounting
that .businessdictionary.com/definition/offset.html”>offsets .businessdictionary.com/definition/revenue.html”>revenue
against .businessdictionary.com/definition/expense.html”>expenses on
the basis of their cause-and-effect .businessdictionary.com/definition/relationship.html”>relationship.
It .businessdictionary.com/definition/state.html”>states that,
in measuring .businessdictionary.com/definition/net-income.html”>net income
for an .businessdictionary.com/definition/accounting-period.html”>accounting period,
the .businessdictionary.com/definition/costs.html”>costs .businessdictionary.com/definition/incurred.html”>incurred in
that .businessdictionary.com/definition/period.html”>period should
be matched against the revenue generated in the same period. Failure to report
an accurate income statement during the appropriate reporting period can
mislead investors and stockholders.