[gottabme]

Income Statement Preparation

I was provided the following information and would like to know how I can figure out the Income taxes (30% of income before taxes)

Accounts Payable: 35,000

Accounts Receivable: 65,000

Advertising Expense: 15,000

Cash: 19,500

Supplies Expense: 46,000

Rent Expense: 10,000

Utilities Expense: 3,000

Income Taxes (30% of Income before taxes): ???

Miscellaneous Expense: 4,400

Owner's Equity: 140,000

Salaries Expense: 61,000

Fees (revenues): 384,000

[justme8]

To figure the income (at a rate of 30%) you need to figure out your Costs/expenses and subtract them from all the income (accounts receivable and the cash) and then you come up with a profit --- multiply that by .7 (which is 1 minus .3) and that will be your gross income. The taxes are the profit multiplied by .3 (and taxes are an expense)

[morgaine300]

First, accounts receivable and cash are not income. They are assets. (Not to mention that costs are not necessarily the same thing as expenses, so please don't state it that way.)

But it is correct that you need to find your revenues and then find your expenses, and subtract expenses from revenues.

Second, there is no need to multiply by .7. That's going to give you the net income after taxes have been subtracted. (Not gross income.) But you need to get the taxes anyway, so figure that out, and then subtract from income before tax if you need net income. The 70% is the net income that's left over after the taxes, not gross.

[schlimmste]

I have no idea what kind of accounting you learned, because firstly, Accounts Receivable and Cash go on the Balance Sheet, and secondly, there's no need to multiply by 0.7 at all. Why. What did you learn that tells you this?

Income tax is calculated after all expenses (including the Cost of Goods Sold) have been deducted from all revenues. So it's: [(0.30)*(operating income) = Income tax expense] Then you subtract this total from the Operating Income to receive your Net Income.