Introduction to Income Statements With Sage 50 Complete Accounting Section 0130A

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1 Introduction to Income Statements With Sage 50 Complete Accounting Section 0130A Presentation Objectives The goal of this section is to present the following concepts to the reader. 1. Recap of the flow of the four basic financial statements. 2. An introduction to accessing Sage 50 Complete Accounting financial reports. 3. An introduction into income statement basics. 4. An introduction the Standard Income 12 Period Report of Sage 50 Complete Accounting. 5. An introduction the Standard Income/Earning Report of Sage 50 Complete Accounting. 6. An introduction into the options with the Sage 50 Complete Accounting Income Statement Report. 7. An introduction to the drill down function available in Sage 50 Complete Accounting. Contents Presentation Objectives 1 Copyright and Legal Protection Issues 2 Support File 2 The Flow of the Four Basic Financial Statements 2 Accessing Sage 50 Complete Accounting Financial Reports 3 Income Statement Basics 5 The Standard Income 12 Period Report 10 The Standard Income/Earnings Report 12 Options with the Sage 50 Complete Accounting Income Statement Report 14 Time Frame Current Period or Range 15 (Page) Setup (Microsoft) Excel 17 PDF 18 (Print) Preview and Design 18 Find 20 Page 1 of 23

2 Drill Down into the Ledger 20 Copyright, Patent, Trademark, Trade Logo, and Service Marks Acknowledgements 22 Sage Software, Inc. 22 Texas Instruments Incorporated 22 Microsoft Corporation 22 Adobe Systems Incorporated 22 Index 23 Copyright and Legal Protection Issues This text section is using Sage 50 Complete Accounting and the example companies, Bellwether Garden Supply and Stone Arbor Landscaping, provided for education, personal, and professional development within that product. Sage Software, Inc. has legal protections in place such as copyrights and patents for its products. I believe I am within those boundaries when I use their included assets for the use of education, personal, and professional development in this manner. Support File There is a Microsoft Excel file, 0130A-Intro to the Income Statements with Sage 50 Complete Accounting , in support of this section. There are also PDF files of several companies annual shareholders reports and SEC filings in the directory. The Flow of the Four Basic Financial Statements As presented in the 0120 series, Intro to Financial Statements with Sage 50 Complete Accounting, there are four financial statements and they flow in a sequence of the income statement, the statement of retained earnings, balance sheet, and the statement of cash flows. The income statement and balance sheet have rather intense interactions passing through the statement of retained earnings as shown in the 0120 series. Computerized accounting applications such as Sage 50 Complete Accounting are primarily management and data manipulation tools. This is not a negative comment, the primary activity of management is to manage, not report, and presented information needs to be of assistance in that process. The Page 2 of 23

3 output of these systems frequently does not meet the needs or desires for publicly released financial statements. If you look at the several of the reference files for company reporting in the Class Support Files directory you will see that the financials are comparative, showing more than one year in all reports. This comparative presentation is usually done outside of the computerized accounting package in use by the company, often within an application such as Microsoft Excel. This is most likely one of the reasons Sage 50 Complete Accounting has export tools to Microsoft Excel in almost all reports. In this section we will look at several of the income related reports of Sage 50 Complete Accounting. I have downloaded many of them and saved them in the 0130A-Intro to the Income Statements with Sage 50 Complete Accounting reference file. Only portions of them are reprinted here. Accessing Sage 50 Complete Accounting Financial Reports By clicking on Forms & Reports of the menu bar of Sage 50 Complete Accounting you will attain access to the drop-down menu options. Page 3 of 23

4 Click on the Financial Statements option to access the various financial statements available within Sage 50 Complete Accounting. Page 4 of 23

5 Within Sage 50 Complete Accounting there are five preformatted income statement options. The <Standard> in front of each lets you know that these are preformatted. You have the ability within Sage 50 Complete Accounting to create your own reports and establish the formats within some limits. All of these standard reports are actually reports focused on the needs of management presenting information for decision-making. All of the income statement formats for Bellwether Garden Supplies have been exported into the Microsoft Excel reference file, 0130A-Intro to Income Statements with Sage 50 Complete Accounting. They may have been slightly reformatted for easier reading and display. Income Statement Basics The basics of the income statement, sometimes referred to by such titles as the statement of operations or the statement of earnings, is the presentation of revenues, expenses, gains, and losses for a specific range of time. It starts with a header of three lines. The first and second lines are absolutes. The first line is the full, legal, name of the company. This cannot be changed or abbreviated. If the company s name is Miramar Student Accounting Services Incorporated, you cannot abbreviate it in the title line to Miramar Student Accounting Services Inc. because you feel it is too long to spell it out. For publicly traded companies the best location of the names is on the SEC filed reports. The second line will be the title of the report, such as Income Statement. The third line has some variations due to presentations. If only one fiscal period such as month, quarter, semi-annual period, or year is presented for management use the third line may read such as For the Month Ended January 31, For publicly released financials, which are comparative, the third line may read For the Year Ended December 31 with the years posted over the columns representing their values. In the abbreviated through copy, crop, and paste portion of a sample income statement from Bellwether, below, the third line reads For the Three Months Ending March 31, Page 5 of 23

6 One variation is seen as the header in Sage 50 Complete Accounting s income statement for twelve periods, as shown here. As a management report, the second line of the title is modified to identify the report s purpose, Income Statement Page 6 of 23

7 12 Periods and the third line provides specifics for the report, For January 1, 2015 through December 31, As a management document not to be distributed to the public, there is no violation of U.S. GAAP or SEC codes with this titling. Below the header the income statement presents only revenues, expenses, gains, and losses in its simpler formats. In more complex companies and accounting courses you will address the issue of comprehensive income statements. Revenues, expenses, gains, and losses are values, not necessarily cash. For example the sale on January 5, 2015, for $3,000 with a cost of goods sold of $1,200, may be for cash or on account meaning you expect payment sometime in the future. The journal entry for this sale with cash being received is shown here. Jan 05, 2015 Cash 3, Sales Revenues 3, Cost of Goods Sold 1, Inventory 1, Sold $1,200 in inventory for $3,000 cash. If this sale had been on account, the journal entry would look like this. Jan 05, 2015 Accounts Receivable 3, Sales Revenues 3, Cost of Goods Sold 1, Inventory 1, Sold $1,200 in inventory for $3,000 on account. Regardless of whether cash was received or the sale was made on account, the income statement receives a credit value of $3,000. The Cash or the Accounts Receivable account on the balance sheet receives the debit value of $3,000. The Cost of Goods Sold value of $1,200 is a debit value recognizing the expense of earning the sale value. So this sale increases revenues by $3,000 and expenses by Page 7 of 23

8 $1,200 resulting in the value of ($3,000 - $1,200) titled Gross Profit on the income statement. This process, as it continues through the income statement, will answer several important questions in many formats. Did the sale cover our cost of goods sold? If revenues, a credit value increasing owners equity in its flow through the income statement and the statement of retained earnings to the balance sheet, is greater than the debit value of Cost of Goods Sold, the answer is yes. This is good. Then the second question comes into play. Did the sale resolve my operating expenses associated with making the sale? This is often an over a period of time evaluation as you do not know, and do not want to spend the time figuring out the wages, utilities, insurance, rent, etc. costs associated with making one sale. However, assume that Wages Expense of $25, Utilities Expense of $10, Insurance Expense of $3, and other expenses of $4 are associated with this one sale. Total operating expenses, those associated with the sale floor, are ($25 + $10 + $3 + $4) $42. Therefore, Income from Operations which is Gross Profit less Operating Expenses is ($1,800 - $42) $1,758. This is good. Our sales floor is operating profitably. The third question is does this sale cover the associated General & Administrative Expenses, those expenses of the company outside of the sales floor such as the president s salary, the human resources department, the accounting department, the legal department or contract lawyer, the advertising department, the cost of the headquarters building, etc. Assume these costs are $128. This leaves you an income before income taxes (Income from Operations General & Administrative Expenses) of ($1,758 - $128) $1,630. This is good. So far revenues, a credit value, has exceeds all the associated expenses, which are debit values. Assume that income taxes are 30%, the income tax burden could be (1,630 30%) $489 reducing this $3,000 sale to a net income of $1,141. Remember, this example value of $1,141 is the assumed net income from one $3,000 sale. The company has costs incurred for lookers and not buyers. While the company may not have Cost of Goods Sold, it does have the cost of many other items such as janitorial, sales representatives, insurance, utilities, president s Page 8 of 23

9 salary, human resources, etc. Many expenses incurred because of someone entering the company and not purchasing anything. This sale must cover those non-sale expenses. In the simplest format the income statement is shown as: Formal, Legal Name of the Company Income Statement Range Reference Line Net Revenues $ Less Expenses Net Income $25.00 This is the format often presented in textbook accounting. As a management document there is much lacking and often requires adjustments by the recipients to answer those previous question, Did we cover the cost of goods sold? Did we cover our selling expenses? Etc. So the format is often expanded as shown here. Formal, Legal Name of the Company Income Statement Range Reference Line Sales Revenues $ Less Sales Returns & Allowances 5.00 Less Sales Discounts 3.00 Net Sales $ Less Cost of Goods Sold Gross Profit Selling Expenses Selling Wages Expense Rent Expense 4.00 Utilities Expense 3.00 Total Selling Expenses Income from Operations General & Administrative Expenses Admin Wages Expense Office Rent Expense 3.00 Total G&A Expenses Income Before Income Taxes Income Taxes Expense (40%) Net Income $15.00 Page 9 of 23

10 However, for publicly released comparative statements are required so the previous fiscal period s values are presented. The Standard Income 12 Period Report An abbreviated through copy, crop, and paste portion of the <Standard> Income 12 Period report for Bellwether Garden Supply is shown here. It is a management document and shows periods understood to be months from reading the date range line in the header. This report allows the reader to evaluate performance and changes from periods. Bellwether is a garden supply operation. As such they would expect specific product lines to vary throughout the year due to seasons. To provide additional value to the company this report can be exported into Microsoft Excel and a trend report over several years can be easily constructed by combining several years reports. Page 10 of 23

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12 The Standard Income/Earnings Report An abbreviated through copy, crop, and paste portion of the <Standard> Income/Earnings report for Bellwether Garden Supply is shown here. The second and fourth numerical columns are percentages based on vertical analysis. Sales is 0.34% of Total Revenues while Sales Aviary is 8.10% of total sales. Direct Labor Nursery is 1.99% of Total Revenues while Material Costs Nursery are 6.18% of Total Revenues. These two costs are part of produced, Cost of Goods Sold, items. Wages Expense, an Expense item is 50.91% of Total Revenues. This type of information is what makes these types of reports the powerful management tool they are in a preformatted presentation. Notice that the bottom shows the changes in Retained Earnings. Not a presentation you would see on an income statement for public release. Page 12 of 23

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14 Options with the Sage 50 Complete Accounting Income Statement Report Using the <Standard> Income Statement report as the example, when you select this report Sage 50 Complete Accounting will provide you with a dialog box, shown here. The defaults have the Time Frame set to Current Period while Print Page Numbers and Show Zero Amounts are selected. While I may shift the Time Frame, as a matter of preference, I leave Print Page Numbers and Show Zero Amounts selected. The options for Time Frame are Current Period or Range for this report, they may vary appropriate with other reports. You can select your personal preference for Print All Words Capitalized and Center on Page. Advisory on margins, make sure your printer is capable of the margins set within Sage 50 Complete Accounting. Having zeros show up in managerial reports makes the reports longer but may make you aware of an omission or error in the accounting records. This is particularly true working with adjustments at the end of fiscal periods. Page 14 of 23

15 Time Frame Current Period or Range By selecting Range in the drop-down options Sage 50 Complete Accounting allows you to change the From and To window values through drop-down menu options. These are often limited by the period that Sage 50 Complete Accounting is working in. Accounting periods are addressed in the 9020A-Basics of Sage 50 Complete Accounting section. Page 15 of 23

16 This is the Bellwether income statement for the month ending January 31, The menu line of the <Standard> Income Statement has File, Edit, Go To, Window, and Help while the task bar has icons for actions such as Close, Save, and Print. The menu bar options are usually associated with drop-down menus while most of the icons on the task bar are one-click options or one click to bring up a dialog box. On the menu bar the Window option will usually give you a choice of selecting the Reports & Forms dialog box or going back to Sage 50 Complete Accounting without closing the current report. The task bar has another Options opportunity. With it you can make the same choices about range or current period, page numbers, and zeros. (Page) Setup (Page) Setup from the menu bar allows you to set Portrait (default in most cases) or Landscape printing as well as the size of the printed sheet. Using the icon, you can displayed reports out of Sage 50 Complete Accounting. Your system must be Messaging Application Programming Interface (MAPI) compliant. Sage Software provides the advisory that AOL is not fully MAPI compliant. When utilized, it opens your application and allows you to insert a receiving address, override the default title the , and enter text as desired before sending the . Page 16 of 23

17 (Microsoft) Excel The (Microsoft) Excel icon opens a dialog box, shown here. The default is to Create a new Microsoft Excel workbook. I was exporting several income related reports to the section reference file so I utilized the Add a new worksheet to an existing Microsoft Excel workbook option. I accept the default of Use Freeze panes (headers and labels are visible) in the Excel options section. Depending on what I am doing I will select Show Header in Excel worksheet over Send header to Page Setup in Excel. With Send Header, you will not see the header until you do Print Preview or print the report. For data manipulation select Raw data layout in the Report layout option area. For comparison, I have downloaded the <Standard> Income Statement from Bellwether using the Sage 50 report layout and Show header in Excel worksheet options to the Microsoft Excel Income Stmnt Report-Header tab of the section reference file. Page 17 of 23

18 PDF The PDF (Portable Document Format) utilizes an internal capability of Sage 50 Complete Accounting to create a PDF file of the displayed report. While using this option you can select the destination and name of the saved file. (Print) Preview and Design Preview is a Print Preview option. This comes into play with Design option. While the Design option is a bit above this section s level, you can play with it as much as you want. The first dialog box is shown here Page 18 of 23

19 By selection a line, such as Line Description is in the Expenses section you can then select one of the icons on the left side. By selection Properties you access another dialog box, shown here. If your selling expenses are set in the range and general and administrative expenses are set in the range you can separate those accounts and totals to help you answer the Did I recover my cost of goods sold?, Did I recover my selling expenses?, and Did I recover enough costs to cover general and administrative expenses? After you have modified a report you can click on Preview to see what it will look like printed or ed. Clicking on Save will allow you to save the format for later use. No not hesitate in playing with specialized formatting. You can always delete the format if it does not work. Page 19 of 23

20 Find The Find icon takes you to the Find on Report dialog box. The Find function works with text or values. You have search limiting options you can select. To demonstrate its power, I searched for 9, which would return any value of 9 followed by a coma such as 9,000 or 9,000,000. Drill Down into the Ledger When placing your cursor over a dollar value in the income statement your cursor should turn into a magnifying glass with a capital Z in the lens area. During this presentation double click the left (default button) mouse button and Sage 50 Complete accounting will drill down into the general ledger for the same account with the same period as selected in the income statement. Drill down continues in the general ledger. You can drill down through any dollar value to the journal entry or screen that entered it. Page 20 of 23

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22 Copyright, Patent, Trademark, Trade Logo, and Service Marks Acknowledgements Sage Software, Inc. This course is based on the utilization of Sage 50 Complete Accounting. All references to, and images of Sage products are protected by Sage Software, Inc. Their U.S. contact information is Sage Software, Inc., 6561 Irvine Center Drive, Irvine, CA As the author of this text, Sage Software has been very generous in offering their software for educational endeavors. This software has restrictions to its use, it cannot be utilized in a non-educational application, and cannot be sold, resold, or traded for compensation. Texas Instruments Incorporated Devices such as the Texas Instruments BAII Plus Professional, BAII Plus, and TI- 84 series calculators are protected by Texas Instruments Incorporated (TI). Their reference here is not intended to violate any of the legal protections that TI has. I use their BAII Plus Professional Emulator in my classroom and may have used it in this section to clarify the information or to show how to utilize this device. TI can be contacted at Texas Instruments Incorporated, P.O. Box , Dallas, TX Microsoft Corporation Microsoft has legal protections over products such as Microsoft Office and its elements such as Microsoft Word (Used to write this text), Microsoft Excel, Microsoft PowerPoint, and Microsoft Access. It also has legal protection in place for its products such as Microsoft Dynamics ERP. Their contact information is Microsoft Corporation, One Microsoft Way, Redmond, WA Adobe Systems Incorporated Adobe has legal protections over products such as Adobe Acrobat, Adobe Photoshop, and Adobe Dreamweaver. Several of those products were utilized in the production of this text. Adobe Reader can be downloaded from: Their contact information is Adobe Systems Incorporated, 345 Park Avenue, San Jose, CA Page 22 of 23

23 Index ( (Microsoft) Excel (Page) Setup (Print) Preview and Design A Accessing Sage 50 Complete Accounting Financial Reports... 3 Adobe Systems Incorporated C Copyright and Legal Protection Issues... 2 D Drill Down into the Ledger E F Find I L Learning Objectives... 1 M Microsoft Corporation O Options with the Sage 50 Complete Accounting Income Statement Report P PDF S Sage Software, Inc Support File... 2 T Texas Instruments Incorporated The Flow of the Four Basic Financial Statements... 2 The Standard Income 12 Period Report The Standard Income/Earnings Report Time Frame Current Period or Range Income Statement Basics... 5 Index Page 23 of 23