 Hello in this lecture, we're gonna continue on with the master budget part 5 We're gonna continue with the income statement So if you haven't looked at the prior budget, you want to probably look at the prior budgets We are we'll be using part of them in order to create the budgeted income statement after this We will be able to first a word from our sponsor Well, actually these are just items that we picked from the YouTube shopping affiliate program But that's actually good for you Because these aren't things that were just given to us from some large corporation Which we don't even use in exchange for us selling them to you These are things that we actually researched purchase and use ourselves Bayer dynamic not sure if I said that right, but this is the DT770 Pro 250 OHM studio reference closed back headphones I wear headphones basically every day for a large part of the day They are important to me. Therefore. I've gone through many different kinds of headphones I've had these for some time and they've worked quite well They fit over my ears, but I'm still able to put my glasses on Under the headphones the headphones not pinching too tight on the glasses to give me a headache Which is nice the quality of the patting is good and it has lasted for some time I've had these for some time now and they haven't gotten all torn up on me or anything like that I also like that I have a cord when I'm doing my recordings as opposed to a USB Centered headphone because that frees up a USB port and I find the USB headphones to be less reliable They come with an audio jack that looks like this which is useful for me because that plugs into my audio interface However, if you want to use the headphones for some other purpose I believe it's fairly easy to get a converter to other types of audio jacks If you would like a commercial free experience consider subscribing to our website at accounting instruction calm or Accounting instruction dot think of it calm where we have many different courses You can purchase one at a time or have a subscription model given you access to all the courses Courses which are well organized have other resources like Excel files and PDF files to download and no commercials List components of the master budget compile the budgeted income statement All right, so let's go through the quick list once again of the components of the budget We have the sales budget. We need to do it in this order We then have the production budget we then can create from the production budget Which was created from the sales budget the direct materials budget the direct labor budget the overhead budget as well as the capital expenditures for large Projects and equipment. We might be purchasing selling and administrative budget. We then created the cash budget the cash flow budget then we in between that in between making our financial statements such as the balance sheet the income statement and the statement of cash flows we Needed the cost of goods sold and therefore we had to create the cost of goods Manufactured the cost of goods manufactured and the cost of goods sold Calculations have been done in order to help us with the budgeted income statement in that case now We're gonna move to the one of the major statements Of course one of the major statements that we think of when we think of the budget That's the income statement because we're usually thinking about how we're gonna perform Over time and that's gonna be income statement the timing of how we're doing So that's what we're gonna move to at this point in time. So let's take a look at all the budgets We've seen so far We're gonna be using some of these in order to create the budget income statement. We started off with the sales budget What are we gonna make we then use that to create the production budget? How much stuff are we gonna produce and then we use that to see how much? Materials we're gonna need in step three and then in step four We needed to see how much direct labor we were gonna need and then in step five We had the factory overhead then the selling and administrative and finally the general and administrative areas when then we did the budgeted cost of goods manufactured budget and we also did the cash flow budget was in there as well and Then the cost of goods sold those are gonna be the major components We will then need going forward here to the budgeted income statement So now we are on the budgeted income statement and first piece will of course be the sales So the sales we're gonna jump back to the sales budget and that's where we're gonna have the total sales We just don't jump back to step one sales budget That's gonna be line one of the budgeted income statement Then we have the cost of goods sold calculation, which of course we have calculated and We did that in the budgeted cost of goods sold So remember that's in the prior recording where we took a look at the cost of goods manufactured This number here which we needed in order to create the cost of goods sold Calculation then we can of course take the cost of goods sold number and plug that into our budgeted income statement at this point Then we're gonna have the gross profit That's gonna be the sales minus the cost of goods sold that will give us the gross profit Calculation as normal then we're gonna have the operating expenses all other expenses here within the operating expenses We are going to have the sales commission and sales salary So we're gonna pick those numbers up by jumping back to the selling and Selling expense budget so we have these two items We didn't total them up in this budget so we'd have to add them up So we got July August September for the sales commission and July August and September for the sales salary If we added these up and then I added these up then we would come up with the 130 248 for the sales commission and the sales salary 1005 All right, then we have the general administrative salaries and the long-term note interest And we're gonna pull that from here. So we got the general administrative this one We did total up for the 33,000 and the 15 We're just summing up the quarter at the full quarter, which is of course the three months in this case So here's the 33 and the 15 general administrative long-term note interest Then we have the short-term note interest. I'm just gonna pull that number in we did that on the cash flow statement So you could pick it up from the statement of cash flows where we calculated the interest on the short-term note And then if we sum these items up we're summing up the operating expenses So we pulled them into the enter column if we add these up and pull them out to the outer column We have the total operating expenses of the 188 to 868 and now we have the gross profit profit and the operating expenses We're gonna subtract those two out just as we normally would 255 335 minus the 188 668 would give us the 66 467 that's income before taxes now We're gonna assume a tax rate of 35% we generally break out the taxes separately as a separate light item even though they are an expense You know related to all the other types of expenses because taxes tend to distort the picture And we know the taxes vary in relation to net income So we're usually gonna break that out at the bottom here. So we're gonna take the 66 467 We're gonna assume point three five thirty five percent tax rate and that will give us at the tax 23 263 so there's the 23 263 then if we take the income before taxes minus the taxes That will give us the net income the 43204 net income