Multi-step for a company with both sales and service revenue; then the RE bridge

Reading the adjusted trial balance into a statement

The adjusted trial balance is a list; the income statement is an argument. It says, in order: what the company earned, what the goods it sold cost, what running the business cost, what financing it cost, what the government took, and what is left. Tamarack’s adjusted figures, arranged that way:

Tamarack Marina & Storage Inc.
Income Statement
For the year ended 31 December

Revenue
  Service revenue                          517,600
  Sales revenue                            312,000
  Total revenue                                        829,600
Cost of goods sold                                     219,100
Gross profit                                           610,500
Operating expenses
  Salaries expense                         306,400
  Utilities expense                         31,500
  Repairs expense                           14,200
  Insurance expense                         11,000
  Supplies expense                           4,700
  Amortization expense                      30,000
  Advertising expense                        9,300
  Bad debts expense                          1,800
  Total operating expenses                             408,900
Income from operations                                 201,600
Interest expense                                         7,500
Income before income tax                               194,100
Income tax expense                                      38,820
Net income                                             155,280

Two revenues, one gross profit

A marina earns most of its revenue by service — slips, storage, repairs — and some by selling goods — fuel and chandlery. Cost of goods sold (218,400 plus the 700 write-down = 219,100) belongs to the sales alone. On a single multi-step statement, gross profit is still shown against total revenue, 829,600 − 219,100 = 610,500 — and a marker accepts either that or a gross profit on sales only (312,000 − 219,100 = 92,900) with service revenue added below, provided you say which you did. The cost-of-goods-sold line does not change; only the subtotal’s name does.

Below operations

Income from operations, 201,600, is what the marina earns from being a marina. Interest expense sits below it: how Tamarack is financed is not part of running it, and a lender comparing marinas wants an operating figure before financing cost. Any gain or loss on disposal would sit there too. Income tax is last, computed on income before tax — 20 % × 194,100 = 38,820 — and net income 155,280 is the line the statement of retained earnings takes.

Two temporary accounts that are not expenses

The trial balance carries Dividends 24,000 as a debit. It is not an expense and never appears on the income statement; it is a distribution, and it belongs on the next statement. And the trial balance’s Retained Earnings 258,550 is the opening balance — the account has not moved since last year’s closing, because net income and dividends are still sitting in their own temporary accounts. The closing figure exists nowhere on the trial balance; the SRE builds it.

The bridge

Tamarack Marina & Storage Inc.
Statement of Retained Earnings
For the year ended 31 December

Retained earnings, beginning of year                   258,550
Add: net income                                        155,280
                                                       413,830
Less: dividends declared                                24,000
Retained earnings, end of year                         389,830

258,550 + 155,280 − 24,000 = 389,830, and that figure — not 258,550 — is what the balance sheet’s equity section will show. A balance sheet that does not balance is, nine times in ten, one that used the trial balance’s retained earnings.