Expanded Ledger!

The new accounts include revenues, expenses and drawings. Revenue is an increase in equity resulting from the sales of services and goods in the business, also known as fees earned or sales. Expenses are the cost that is related to providing these revenues. For example; rent, supplies, wages, furniture and advertisement. Drawings are not included in the income statement as it has no direct relationship with the company/business. It is withdrawals from the business by the owner. These withdrawals represent a decrease in equity.

Income Statements!

Income statements shows the net income or profit of the company. Also organizes new equity accounts into a formal statement. RED stands for revenue, expenses and drawings. The income statement includes the revenue and the expenses. The difference between the two amount results in a net income if it increase in equity or net loss if it decreases in equity. Income statements are used by variety of people including owners, managers, bankers, investors and income tax authorities.