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Accounting in ERP Systems
The income statement,or profit and loss (P&L) statement, shows the company’s
revenue and expenses and the profit or loss for a period of time (typically a quarter or a
year). Profitability is important to creditors and investors. It is also important information
for managers in charge of day-to-day operations. In general, a manager views profits as
indicators of success and losses as indicators of problems to be solved. Figure 5-2 shows a
sample income statement for Fitter.
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Fitter Snacker Income Statement
For the year ended December 31, 2011
(in thousands of dollars)
Revenue
Sales revenue $36,002

Total revenue $36,002
Expenses
C o g f o t s o o d s s e d l o x p e n s e $ 2 6 , 5 9 1
S n i l l e g , g e n a , l a r e n a d d m v i t a r t s i n i e e x p e n s e $ 2 , 4 5 1
R e s e c r a a h n d d e v o l e p m e e t n x p e n s e $ 9 6 2
Interest expense $521

Total expenses $31,425

Pretax income $4,577
Income tax expense $1,144

Net income $3,433
Source Line: Course Technology/Cengage Learning.

FIGURE 5-2 Sample income statement for Fitter

Typically, companies prepare financial statements quarterly, sometimes more
frequently. To prepare these statements, a company must “close its books,” which means
that balances for temporary or nominal accounts (such as revenue, expense, gain, and
loss) are transferred to the retained earnings account. The closed nominal accounts will
have a zero balance from which to start accumulating revenue and expenses in the next
reporting period. Closing entries are made to transfer the balances and establish zero
balances for the nominal accounts. To do this, employees must check the accounts to
ensure they are accurate and up to date. If a company’s information systems routinely
generate accurate and timely data, closing the books can go smoothly. If not, “adjusting”
entries must be made, in which case, closing the books can be a very time-consuming
chore with inaccurate results.

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