7 INCOME STATEMENT

Summary

In this educational lecture, Dr. Osama Cash explains the concept and formulation of an income statement, a financial report summarizing a company's revenues, expenses, and net profit or loss. He demonstrates how to apply this knowledge in Excel, showing calculations for revenues, expenses, and net income, and comparing financial data between two years. The presentation highlights Excel's utility in organizing and calculating financial data effectively.

Takeaways

• 📊 The income statement is a financial report that shows a company's revenues, expenses, and the resulting profit or loss over a specific period.
• 🔍 Dr. Osama is teaching students how to formulate an income statement and the benefits of using it in financial analysis.
• 💻 The lecture includes a practical application of income statements in Excel, demonstrating how to organize and calculate financial data effectively.
• 📈 Revenues are calculated by adding sales revenue, interest revenue, and gains from the sale of assets, as illustrated with the example of 108,000.
• 🛒 Expenses include cost of goods sold, commissions, office supplies, equipment, advertising, and interest expenses, totaling 90,000 in the example.
• 💡 The difference between total revenues and total expenses determines net income or net loss, which is the company's profit or loss.
• 📝 The script provides a step-by-step guide on how to input and calculate the income statement components in Excel, including using the SUM function.
• 📉 The example given shows a comparison between two years, 2015 and 2020, to demonstrate how Excel can be used for year-over-year financial analysis.
• 📋 Excel's flexibility allows for adjustments in cell size, formatting, and data entry, which can be tailored to the user's preferences and needs.
• 📊 The script explains how to calculate income before taxes and net income after taxes using Excel, emphasizing the importance of accurate financial reporting.
• 👨‍🏫 Dr. Osama emphasizes the educational aspect of the lecture, reminding students to refer back to previous videos for a deeper understanding of Excel applications in financial statements.

Q & A

What is the main purpose of an income statement?

The main purpose of an income statement is to show a company's revenues, expenses, and the resulting net profit or loss over a specific period of time.

How does an income statement calculate net income?

Net income is calculated by subtracting total expenses from total revenues. If revenues exceed expenses, the result is a net profit; if expenses exceed revenues, the result is a net loss.

What are some examples of revenues mentioned in the script?

Examples of revenues mentioned in the script include sales revenues, interest revenues, and gains on the sales of assets.

What are some examples of expenses mentioned in the script?

Examples of expenses mentioned in the script include cost of goods sold, commissions expenses, office supply expenses, office equipment expenses, advertising expenses, interest expenses, and loss from lawsuits.

How does the script differentiate between interest revenues and interest expenses?

Interest revenues are the earnings from money deposited in the bank, while interest expenses are the costs associated with borrowed money, such as loan interest.

What is the significance of the difference between total revenues and total expenses?

The difference between total revenues and total expenses determines the net income or net loss of a business, which is a key indicator of its financial performance.

How can Excel be used to facilitate the creation and management of an income statement?

Excel can be used to organize data, perform calculations such as summing revenues and expenses, and automatically update totals and net incomes as data changes.

What is the formula used in Excel to calculate the sum of a range of cells?

The formula used in Excel to calculate the sum of a range of cells is '=SUM(start_cell:end_cell)', where 'start_cell' and 'end_cell' are the references to the first and last cells in the range.

How does the script demonstrate the use of Excel functions for calculating totals?

The script demonstrates using the SUM function and the AutoSum feature in Excel to calculate the total of a range of cells, showing two methods to achieve the same result.

What is the role of 'income before taxes' in the income statement?

Income before taxes is the amount of income a company has earned before accounting for tax expenses. It is calculated by subtracting total expenses from total revenues.

How does the script illustrate the calculation of net income after taxes?

The script illustrates the calculation of net income after taxes by deducting the calculated tax expenses from the income before taxes.

Outlines

00:00

📈 Introduction to the Income Statement

Dr. Osama Cash begins the lecture by welcoming the students and introducing the topic of the income statement. He explains that they have previously covered the formulation and uses of the income statement. The lecture aims to demonstrate how to apply the income statement in an Excel program. The income statement is described as a record of revenues and expenditures, showing the net profits or losses by subtracting expenses from revenues. Examples of revenues include sales revenue, interest revenue, and gains on asset sales. The lecturer shares his screen to visually guide the students through the process.

05:03

📊 Applying the Income Statement in Excel

The second paragraph delves into the practical application of the income statement using Excel. Dr. Cash shows how to input data and perform calculations in Excel to compare the income statement of two different years. He demonstrates how to enter company names, calculate revenues by summing different revenue streams, and use Excel functions like SUM to automate calculations. The paragraph also covers how to adjust cell sizes and enter data in a structured manner, emphasizing the importance of Excel in organizing financial data.

10:04

💼 Calculating Expenses and Income Before Taxes

In the third paragraph, Dr. Cash continues the discussion on Excel applications, focusing on calculating expenses and determining the income before taxes. He explains how to input various expense items such as cost of goods sold, interest expenses, and wages. The lecturer demonstrates how changes in one cell can automatically update the total expenses, showcasing the dynamic nature of Excel. He also calculates the income before taxes by subtracting total expenses from total revenues and discusses the impact of taxes on net income.

15:04

💡 Conclusion and Excel's Role in Financial Organization

The final paragraph wraps up the lecture by summarizing the importance of Excel in organizing and calculating financial data. Dr. Cash highlights how Excel has helped in systematically presenting the income statement, making it easier to understand and analyze. He thanks the students for their attention and emphasizes the value of Excel in managing financial information, particularly in calculating net income and applying taxes.

Keywords

💡Income Statement

An income statement is a financial report that outlines a company's revenues, gains, expenses, and losses over a specific period. It is essential for understanding a company's financial performance. In the video, Dr. Osama explains how to formulate an income statement and its uses, emphasizing its role in calculating net profits or losses by subtracting expenses from revenues.

💡Revenues

Revenues are the income generated from normal business operations, such as the sale of goods or services. They are the top line in an income statement and represent the total amount of money a company receives over a given period. In the script, Dr. Osama mentions sales revenue, interest revenue, and gains on the sales of assets as types of revenues, using examples like selling units at a certain price to calculate total revenues.

💡Expenses

Expenses are the costs incurred by a company in the process of generating revenues. They are subtracted from revenues to determine the net income. The video script includes examples of various expenses such as cost of goods sold, commissions, office supplies, office equipment, advertising, and interest expenses, which are essential for calculating the company's profitability.

💡Net Profit

Net profit, also known as net income, is the amount remaining after all expenses have been deducted from total revenues. It indicates a company's profitability and is a key figure in the income statement. Dr. Osama illustrates this by showing how revenues minus expenses result in net profit, using a calculation example in the script.

💡Excel

Excel is a widely used spreadsheet program that can be utilized for various financial calculations and data organization. In the context of the video, Dr. Osama demonstrates how to apply income statements in Excel, showcasing its capabilities to organize financial data and perform calculations like summing up revenues and expenses.

💡Cost of Goods Sold (COGS)

Cost of Goods Sold refers to the direct costs attributable to the production of goods or services sold by a company. It includes costs such as materials and direct labor. In the script, Dr. Osama includes COGS as an expense item in the income statement, providing an example of how it is calculated and its importance in determining net income.

💡Interest Revenues and Expenses

Interest revenues are earnings from interest on investments, while interest expenses are costs associated with borrowing money. Dr. Osama differentiates between the two in the script, explaining that interest revenues come from depositing money in the bank, whereas interest expenses are payments made on loans, affecting the company's net income.

💡Net Income

Net income, often referred to as the bottom line, is the final profit figure after all expenses, including taxes, have been deducted from revenues. It is a critical indicator of a company's overall financial health. In the video, Dr. Osama calculates net income by subtracting total expenses and taxes from total revenues.

💡Formulas

In the context of Excel, formulas are mathematical expressions used to perform calculations on data within cells. Dr. Osama demonstrates the use of formulas in Excel to calculate sums, such as total revenues and expenses, which are essential for constructing an accurate income statement.

💡Autosum

Autosum is a feature in Excel that automatically calculates the sum of a range of cells. It is a convenient tool for quickly obtaining totals in financial statements. The script describes how Dr. Osama uses the autosum function to calculate the total of revenues and expenses in the income statement example.

💡Taxation

Taxation in an income statement context refers to the taxes a company must pay on its income, which are deducted from the income before taxes to arrive at the net income. Dr. Osama mentions calculating taxes as a percentage of net income and demonstrates how to subtract these taxes from the income before taxes to find the net income after taxes.

Highlights

Introduction to the income statement and its formulation by Dr. Osama

Explanation of the income statement's role in showing revenues, expenses, and net profits or losses

Application of income statements in Excel for better organization and calculation

The importance of sharing the screen to visually demonstrate the income statement in Excel

Detailed breakdown of revenue components including sales, interest, and gains on asset sales

Calculation of total revenues with an example of summing up different revenue streams

Discussion on expenses including cost of goods sold, commissions, office supplies, and advertising

Clarification of the difference between interest revenues and interest expenses

Demonstration of calculating total expenses and deriving net income

Explanation of how net income is derived from total revenues minus total expenses

Introduction of Excel functions for summing values and their application in income statements

Use of Excel's autosum feature for quick calculation of totals in income statements

Excel application in comparing income statements of two different years

Adjusting figures in Excel and observing the impact on total expenses and net income

Calculation of income before taxes and its significance in financial reporting

Deductions of income tax expenses from income before taxes to find net income

Excel's role in streamlining the process of creating and analyzing income statements

Transcripts

welcome back my dear students

this is Dr Osama cash for your teacher

and today we are going to talk about the

income statement

we had previously a lecture about the

income statement and how to formulate

the income statement and what are the

uses of the income stated

and then we will apply

the income statements into Excel program

and how can you get benefit of you of

excel in formulating the income

statement income statement show me the

the revenues and the expenses then when

we say revenues minus expenses it will

give me net profits or net losses and

this is the way it is so this is how the

income statement looks like

and let me remind you but first I have

to share my screen

I have to share the screen first so

everybody can see what is here

as you see now

the income statement like the way you

see it is including

of course the increment statement also

for the companies which is um

uh usually for the a year ended in or

for the months ended in or for the

period like quarterly or semi-annually

or annually the income statements

prepared

so the income statement is a record of

your revenues and your expenditures

and the difference between them will

give me at the end they think as example

here we have the revenues like the sales

revenues my sales operation how much

I earned from the sales

it equals number of units sold

times the price of each

interest revenues for me money for me is

coming for me as

an example I put money in the bank and

this money give me as a company interest

so this is earns

gain on the sales of assets as example I

sold assets with five thousand I earned

2 000 as profit so those are also gains

on sale it's on assets so any revenues

will be here so when we come to see here

now one hundred thousand plus five

thousand plus three all will come to 108

000.

this is the total revenues likewise I

did for the revenues I ordered for I

will do for the expenses so for the

expenses I will talk to the cost of got

sold this is 75 000 commissions expenses

like you pay commissions for the people

you pay commissions for the salesman

this is 5000 office supply expenses 3500

office equipment expenses two thousand

five hundred advertising expenses

because you must pay for advertising

advertisement

so that your product will run and you

will promote your project through the

advertising you paid two thousand

interest expenses now

you took as example loan and you have to

pay the loan plus the interest so the

interest expenses which you paid here is

500 this is different than the interest

revenues

and the interest revenues you deposit

money in the bank but here you lend

money from the bank you lend or borrow

money from the bank

okay so the first interest is yours the

second is interest is you you have to

pay it

this one you have to pay it but this one

you earn it the interest revenues here

you earn it but here the interest you

have to pay it

and you have to pay the interest here

here

in the entrance

okay less loss from lawsuits as example

you have some losses or whatever it was

1500 so all the total expenses are 19

000 if we calculate those 75 000 plus

five thousand plus three thousand five

hundred plus two thousand five hundred

plus two thousand plus five hundred plus

one thousand five hundred Orwell comes

to ninety thousand

so so what I have revenues of one or

eight thousand revenues of 108 000 and I

have expenses of ninety thousand

simply if you your earns are one or

eight thousand and your expenses are

ninety thousand then you earn net income

your net income will be eighteen

thousand which is the day between one or

eight thousand Euros and

your expenses ninety thousand we call

this in business this eighteen thousand

we call them net income the profit

and it was as if it was a minus it will

be net losses okay

now the time comes to apply this

on the Excel

how we will get use of the Excel to

check out for the income statement how

we will work on the income statement in

Excel

okay here's an income statement

and we have here comparison between two

years 215

and 220 and this is the income statement

like we said you can write your company

name here as example L for our company

Alpha and this is income C years ended

in 2020.

so this is what we write now I just want

to remind you uh sorry I just want to

remind you

about uh what we started to talk in the

start that this is Excel program how did

I know that this Excel though behind

Detroit no it doesn't mean anything

because here are the cells as example if

I stop here

this is including cell C and D together

and the line six

if I stop here as example

it's e cell e with line six

if I stop here

it's cell f with line six and so on so

and also I can write I can write

whatever I want to do I can write the

numbers

I can just return it back the way it is

or middle of the way I can do here as

example enlarge DF or decrease it that's

all left up to me I will turn back

to the situation where

uh will have

we wrote the name yeah

okay then Ctrl f z

this was the final

uh

situation we have

okay so now it's Alpha and it's an

income statement and 2020. now the sales

revenue let me say here the sales value

was one ten thousand dollars or one

hundred thousand dollars in 2014 they

were 150

000 dollars

now Less sales returns and allowances I

don't have sales returns

I have service revenues service revenues

where 50 000 I will make it forty

thousand

I got because I'm doing Services I have

revenue from it the world Revenue

means you will edit right here let's say

it was 30

000.

okay

then here it will be 180 and here it

will be 100 plus 40 would be 140.

likewise I told you before how will I

get this number one

because I counted I input The 100

and I have input the 150 and I input the

40 000 and the thirty thousand how did

this was calculated the idea the same

idea which I showed you before

what is the idea which I showed you

before

let us see another Excel application

and we'll show it to you

so if I say as example let me stop here

and I say 100

and here is 200

okay and I want the sum of this here I

want the sum of those two numbers here I

know that 100 200 and 300 but the

problem when they increase

so I would say equals sum s u m and here

I will take the function sum then I will

open bracket

the cell the first cell is f

and the line is one so f 1

then in between brackets

F1 this is our answer is F1

F1 2

this is F1 to F2

F2

then I will close the bracket

then press enter

it gave me 300. that's how it worked

usually we said this is the way to work

or there is another way

like as example if I don't want to do it

by this way

I can go to

uh the functions the functions itself

or I will go to the uh the column of the

formulas so I want the submission of

this audio system then I will tell him

some

here it is autosum and I will tell some

so he will say what do you want 100 and

800 that's fine okay here you got it

300.

so this is another way to calculate the

sum at the Excel program

so we have to do it two ways yeah

and I showed this before in one of the

videos please watch it back okay

now we'll go to the expenses the part of

the expenses how far we have expenses

here

let me put this as example the expenses

here was

200 dollars and here on year 2014 it was

230 dollars

and cost of got sold let me say the cost

of goods sold was 10

000

and here the cost of goods sold was 11

000

then let me see about the interest

expenses and the maintenance repairs and

whatever if I have any more expenses

like as example now I will say this ten

dollars ten thousand of course I'm

trying to simplify the numbers as much

as I can

twelve thousand so that the idea is how

to do it

the idea is how to do it okay

then here also I have sales and wages

let us say forty thousand

and here we have cells travels and wages

of 45

000.

so now look at this when I press here

the whole total expenses will change

now the total expenses became sixty

thousand look at this

10 and 10 20 and 40 we have sixty

thousand and two hundred this is the two

hundred this is the 200 so 210

and 10 and 40 60 200.

okay same likewise the same thing here

for the second year which is 14 14

2014. 230

Plus

one hundred thousand plus two twelve

thousand this is eleven thousand plus

twelve thousand plus forty five thousand

will give me sixty eight thousand two

hundred and thirty

so this was about the total expenses

okay

then the need before income is worth the

gap between them one habits abstract

like 140 minus

the seventy the sixty thousand two

hundred that will give me 79 800.

okie dokie

okie dokie

same thing I will do here

so the system calculated 180

000 minus 68 000 to 27 230 then it will

give me one one seven seven zero

okay

I said the total revenues mine minus the

total expenses that will give me the

income before taxes

okay

now if I know the taxes or I calculated

the taxes and I found that the text is

where 15 960 or maybe like we will say

that if I give let's say 10 percent of

the net income then this cell will be 37

e 37

uh will be uh the amount the total

amount or 8 30

income tax expenses 838 will be 8 30 e

37

times the taxes as example 12 13 or

whatever

okay

now I got the income taxes and I have

the income before taxes I will deduct

them so 79 800 minus 15. thousand nine

hundred and sixty this will give me 63

840.

likewise the same thing for the other

year

okay so the net income is like what you

see in the net income after the taxes

Excel helped me to organize this work it

helped me to organize this work

thank you so much for listening to the

net income and the application by Excel

thank you