net income the total profit for loss after all One final note about income state expenses, including taxes, have been deducted from ments: You may remember that revenue, also called net corporations may choose to make earnings cash payments called dividends to shareholders out of their net eam- ings. When a corporation elects to pay dividends, it decreases the cash account in the assets category of the balance sheet) as well as a capital account (in the owners' equity category of the balance sheet). During any period of time, the owners' equity account may change because of the sale of stock (or contributions/with drawals by owners), the net income or loss, or the dividends paid. that it can no longer be used or is economically worthless. Indeed, in some industries, machines used every day have been reported as having no book value whatsoever for more than 30 years Net Income. Net Income (or net earnings) is the total profit (or loss) after all expenses, including taxes, have been deducted from revenue. Generally, accountants divide profits into indi vidual sections such as operating income and earnings before interest and taxes. Microsoft, for example, lists earnings before income taxes, net earnings, and earnings per share of outstand- ing stock (see Table 14.4). Like most companies. Microsoft presents not only the current year's results, but also the previous two years' income statements to permit comparison of perfor mance from one period to another Temporary Nature of the Income Statement Accounts. Companies record their operational activities in the revenue and expense accounts during an accounting period. Gross profit, eam- ings before interest and taxes, and net income are the results of calculations made from the revenues and expenses accounts, they are not actual accounts. At the end of each accounting period. the dollar amounts in all the revenue and expense accounts are moved into an account called "Retained Eamings." one of the owners' equity accounts. Revenues increase owners' equity, while expenses decrease it. The resulting change in the owners' equity account is exactly equal to the net income. This shifting of dol- lar values from the revenue and expense accounts allows the firm to begin the next accounting period with zero balances in those accounts, Zeroing out the balances enables a company to count how much it has sold and how many expenses have been incurred during a period of time. The basic accounting equation (Assets = Liabilities + Owners' equity) will not balance until the revenue and expense account balances have been moved or closed out to the owners' equity account Walmart Supercent Walmart is the world's second longest company with revenues or over S481 billion kavia BUFFALO WILD WINGS: FROM ACCOUNTING MESS TO SUCCESS Bor uffalo Wid Wings was founded in 1982 beer, gant olevisions featuring sports games, by James Disbrow and Scott Lowery after and buffalo wings with 21 diferentsauces. Discussion Questions the two were unable to find a nearby restau With $1.3 billion in revenue, Buffalo Wild 1. Why did Buffalo Wild Wings get in trouble rant that sold the buffalo wings they desired. Wings has expanded into Canada, the Philip with the IRS, and what does this say about After a few years in business, the founders got pines, and the Middle East, with its first res the importance of accounting? in trouble with the internal Revenue Service taurant in Dubai, United Arab Emirates. The 2. Why did Buffalo Wild Wings need someone for misusing the money they withheld from move might seen unusual: Alcohol is forbid with a strong accounting background to employee paychecks. With finances a mess. den in many Middle Easter countries, and tumn the company around? the company hired former KPMG tax specialist the higher cost of chicken wings is affecting 3. How might higher priced chicken wings and current CEO Sally Smith to help sort out its net profit margins. But through local part impact the company's profitability! financial records. With Smith's help, the com- nerships and menu changes, Buffalo Wid pany thrived. Today, the chain's 1,175 stores Wings is confident it can succeed with global are well known for their unique combination of expansion CHAPTER 14 Accounting and Financial Statements 269