 Hello in this lecture we're going to continue on with our master budget and we're going to move on to the budgeted income statement at this point so quick recap once. First a word from our sponsor. Yeah actually we're sponsoring ourselves on this one because apparently the merchandisers they don't want to be seen with us but but that's okay whatever because our merchandise is is better than their stupid stuff anyways like our CPA six pack shirts a must have for any pool or beach time mixing money with muscle always sure to attract attention yeah even if you're not a CPA you need this shirt so you can like pull in that iconic CPA six pack stomach muscle vibe man you know that CPA six pack everyone envisions in their mind when they think CPA you know as a CPA I actually and unusually don't have tremendous abs however I was blessed with a whole lot of belly hair yeah allowing me to sculpt the hair into a nice CPA six pack like shape which is highly attractive yeah maybe the shirt will help you generate some belly hair too and if it does make sure to let me know maybe I'll try wearing it on my head and yes I know six pack isn't spelled right but three letters is more efficient than four so I trimmed it down a bit okay it's an improvement if you would like a commercial free experience consider subscribing to our website at accounting instruction dot com or accounting instruction dot think of it dot com scan we're gonna go through the whole thing here just this does have to be done in order if we break it down into its pieces it's not too bad but we do have to start off with a sales budget then a production budget raw materials budget direct labor budget factory overhead budget selling expense budget general administrative budget and then we had some cash worksheets to help us out with the cash budget and then we did the cost of goods manufactured budget and now we're going to scroll down to the cost of goods sold budget those two items are going to be needed in order for us basically just to get that number on cost of goods sold for us to calculate on our income statement which is where we are at now now of course an income statement is basically income and expenses we're going to start off with income called sales in this case so we got total sales and we're going to pull that from up above so we're going to say this equals and we're going to scroll all the way up top to where we had the sales number all the way up here that's that one million four four seven two of sales that we will have then we're going to calculate the next number will be the cost of goods sold i'm just going to say this equals what the cost of goods sold is up there where we calculated it on the cost of goods sold calculation and that will then equal what we calculated up here this one million one ninety one eight sixty five we have there and then the sales minus the cost of goods sold will be the growth i'm going to undo that undo that that'll be the gross profit and we're going to subtract that out so our cost goods sold is kind of like our main expense so we're going to say this minus the big expense that's expense related to basically inventory and then we then are going to scroll down to the next set of items those items are going to be operating expenses expenses colon and we're going to start off with sales commission sales commission is going to be an expense and it's not included in the production process it's not up here it's going to be down here and kind of like the period cost generally and so we're going to say that equals and we're going to scroll up to the area where we calculated the sales items so we have the sales commission here and it's going to be the sum of all of those so i'm going to just k equals the sum of the sales commission for july august september we also could have got it from the cash flow budget because we did pay cash for this so it would be on the cash flow budget as well then we're going to have the sale salary sales salaries and we're going to say the same thing and say this equals and once again we could take it from from the sales budget as well but i'm going to go back up here to our i mean we could take it from the cash flow budget as well but i'm going to go up to this area again to the sales budget and say it's equals the sum of the july august and september information so we're talking about the quarter here so we're going to say enter and then we have the general and admin general administrative salaries general administrative salaries so we're going to say equals i'm going to scroll up to the general administrative and again we paid cash for it so that would be on the cash budget but i'm going to go to the general and administrative salaries which is the sum of these 11 000 so i'm going to say this equals the sum of the july august and september and actually i have a total column over here but we could have done it either way it's the 33 000 33 000 and then we've got the long-term note interest that is of course an expense being that it's on the income statement i'm going to say that equals and i'm actually going to pull that from the cash flow statement so we had the long term five thousand a month i'm just going to pick up that 15 right there instead of going all the way up and then we've got interest expense we'll call it short term note interest we also had another note maybe we had that smaller note and that was the just the 120 here because we paid it off remember after the first month so the only expense we have on that is the 120 we paid in july and that will then give us our total operating expense so this number we will pull out to the outside here and we're going to sum up this column so we're going to sum up the left hand column the operating expenses so this equals the sum of and we're going to take the 130 248 down to the 120 adding those up giving us the 188 868 we could underline this want home tab over here underline if we so choose and that will give us the net income before tax so we'll tab over here net income before taxes is going to be the gross profit well we had sales after cost could sold gross profit minus the other operating expenses and note that we always calculate taxes at the end because income taxes kind of throw things off because they obviously go up as net income goes up income before taxes go up and we said that there was a tax rate if we look at their data of 35 percent so we're just going to take this number here 66467 times 0.35 and that's going to be how much tax we pay now notice that 35 percent is a flat tax it's a simplified type of tax we often have to do that in real life there's a progressive tax which is much more complicated to do a budget on so oftentimes we'll we'll estimate a flat tax when we're when we're doing an estimate such as this so we're going to say this equals the 66467 minus the tax then and that will give us the 43204