Income Statement Problems

"John Kitchens" wrote

Unless there is interest paid or accrued, it wouldn't show up on the income statement.

Reply to
Paul A. Thomas
Loading thread data ...

On Thu, 6 Oct 2005 12:17:31 -0400, in alt.accounting "Paul A. Thomas" wrote in :

Agreed.

A pure cash-basis system might, but I cannot imagine anyone using such a system since it is neither GAAP, nor currently acceptable as government accounting, nor acceptable to the IRS for property purchases.

Reply to
David Jensen

Hello,

I am not sure how to account for this.

Company has a note payable for Land. last year we paid 36,000.00 on this note.

I know the entry would be NP Land 360000 Cash 360000

MY QUESTION:

How do I show this on my income statement?

I should know this, but I don't. Please help.

John

Reply to
John Kitchens

"John Kitchens" wrote

As far as the loan goes, yes.

The vehicle will (or should) get depreciated over time unless it is a vehicle held as inventory (ie: for sale to your customers).

For land, nothing. The purchase price gets booked as an asset (a debit entry) and it sits there. Any cash paid at closing gets credited, as well as a credit entry for the initial loan balance. Loan payment (the principal portion) are debited against the loan credit balance until paid in full. If you do your math right, it will end up with a $0 balance when paid in full.

Yup.

To either, buy an asset, or to pay down a liability.

Transactions that affect cash and another asset, or cash and a liability, do not impact the income statement.

They wouldn't.

They would however, see that the liabilities on the balance sheet went down.

Or, looking at what some call the most important financial report, the cash flow statement, you'll notice where the money went.

That is something that also may need to be explained in the notes to the financials.

Nope. Nothing was expensed. Except the interest.

Hey!! Two to ten hours depending on traffic and weather.

Reply to
Paul A. Thomas

Finally, I think I can answer a question (not an accountant but I know enough to get myself in trouble). These two items show up on the Balance Sheet.

Note Payable - Liabilities Cash -Assets

Reply to
Meyer1228

Hello Paul,

Thank you so much for your reply. I need to ask another question please.

I understand that only the interest will show up on the income statement no problem there, but will this also be the case with a car payment. I mean just show the interest on the income statement under interest expense?

I am still having trouble understanding exactly what happens with the land. If we paid 36K total on the note and assuming that 6K of it was interest that would leave the NP Land being debited by 30K.

My problem or lack of understanding comes in with this 30K not being shown on the income statement. It was 30K that was spent. The company no longer has the money so how does someone looking at the income statement know that ?

I mean shouldn't I show this expenditure of 30K somewhere on the income statement.

Please help with this one. I have been away from accounting for a very long time and I am very rusty.

I am only 100 miles away from Athens!

Sincerely, John

Reply to
John Kitchens

yep...the activities are just on balance sheet accounts (note & cash)...no activity on any income ststement accounts...unless there is % or penalty paid....it becomes fun, tryiong to book each monthly auto or machinery payment, using, say 24 cupons.......each monthe the accountant must know how much $ is %, and how much is against principal... only then, can he/she make the correct entries to both the bal sht and income stmt in the right amounts...

Reply to
~^ beancounter ~^

Thank you so much Paul.

You have made things a lot clearer for me.

Sincerely, John

Reply to
John Kitchens

Think about it in terms of journal entries. During the year, you will pay principal and interest on most notes, as it sounds like you are doing here. Say you started with a note of $100,000. During the year, you made payments of $50,000. $36,000 was principal payments and $14,000 was interest payments.

To record the note on the books:

Cash $100,000 Note $100,000

To record the payment of principal on the note: Note $36,000 Cash $36,000

To record the payment of interest on the note: Interest Expense $14,000 Cash $14,000

Note that this assumes you are making no accruals and recording all activity at the end of the period. Under GAAP, you would likely accrue interest periodically by:

Interest Expense $X Interest Payable $X

When this interest is paid; Interest Payable $X Cash $X

Hope this helps.

Reply to
jo_jo

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.