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Income Statement

The income statement summarizes the revenues and expenses generated by the company over the entire reporting period. It is the report that measures the success of a company's operations for a given period of time. It is used to determine profitability, investment value, and creditworthiness of a business. It also helps predict the amounts, timing, and uncertainty of future cash flows.

The income statement is also called: statement of income, statement of earnings, statement of operations, statement of operating results, profit and loss statement, statement of revenue and expense.

Income Statement Usefulness

  • Evaluating performance
  • Predicting performance
  • Assessing the risk of future cash flows

The income statement equation

Revenues - Expenses = Net Income

Elements of the Income Statement

  • Revenues
  • Expenses
  • Gains
  • Losses

Quality of earnings

A company’s officers have motivation to meet or beat Wall Street expectations which affect stock prices and thus the value of their options. Thus the pressure to manage results can get ratcheted up to manipulate results. When good business practices are overridden to achieve numbers this negatively affects the quality of earnings, reducing the usefulness of financial statements.



Entity Name
Income Statement
For the period Ended date
Sales Revenue
Sales $ 4,153,872
Less: Sales discounts $ 26,425
Less: Sales returns and allowances 66,895 93,320
Net sales revenue 4,060,552
Cost of goods sold 2,689,354
Gross profit 1,371,198
Operating Expenses
Selling expenses
Sales salaries and commissions $ 280,698
Sales office salaries 125,336
Travel and entertainment 52,148
Advertising expense 40,698
Freight and transportation-out 42,109
Shipping supplies and expense 25,172
Postage and stationery 16,811
Telephone and Internet expense 13,164
Depreciation of sales equipment 7,800 603,936
Administrative expenses
Officer's salaries 175,000
Office salaries 63,400
Legal and professional services 25,675
Utilities expense 24,377
Insurance expense 16,284
Depreciation of building 19,000
Depreciation of office equipment 16,225
Stationery, supplies, and postage 3,500
Miscellaneous office expenses 2,866 346,327 950,263
Income from operations 420,935
Other Revenues and Gains
Dividend revenue 57,263
Rent revenue 52,445 109,708
530,643
Other Expenses and Losses
Interest on bonds and notes 188,655
Income from continuing operations before income tax 341,988
Income tax 133,375
Income from continuing operations 208,613
Discontinued operations
Income from operations of health insurance,
less applicable income tax $115,050 179,950
Loss on disposal of health insurance company,
less applicable income tax of $36,075 56,425 123.525
332.138
Extraordinary item
Loss of delivery truck and cargo from meteorite,
less applicable income tax of $97,500 152,500
Net income $ 179,638
 
Earnings per share of common stock
Income from continuing operations $ 1.04
Income from operations of discontinued division, net of tax 0.90
Loss on disposal of discontinued operation, net of tax 0.28
Income before extraordinary item 1.66
Extraordinary loss, net of tax 0.76
Net income 0.90

the Blog

February 17/2014

An entities debts and obligation that are not due within one year or business cycle, whichever is longer. To learn more visit Long-Term Liabilities - Accounting Actualities

February 10,2014

Companies must use the percentage-of-completion methods when estimates of progress toward completion, revenue, and costs are reasonably and dependably; as well as the following conditions exist. Learn more at Revenue Recognition - Accounting Actualities

February 3, 2014

Transactions are initially recorded in a journal (also called the book of original entry). Journals are kept in chronological order and list transactions in terms of debits and credits to accounts. Besides a general journal businesses may have specialized journals: sales journal, purchases journal, cash receipts journal, cash payments journal… For more visit Accounting Cycle - Accounting Actualities

January 17, 2014

The Ledger is a book of accounts in which data from transactions recorded in journals are posted and thereby classified and summarized. A general ledger is a collection of all accounts. A subsidiary ledger contains the details related to a single general ledger account.

The accounting system is built from a collection of components referred to elements. Read about them on the elements page at Accounting Actualities.

January 10, 2014

The assumptions in the Conceptual Framework for Financial Reporting are:

Economic entity assumption- The economic activity of the entity is treated distinct and separate from its owners.

Going concern assumption- The absence of information that the entity is not able to continue indefinitely. That the entity has enough income and assets to cover foreseeable obligations.

Monetary unit assumption- The currency used to measure economic activity is going to remain relatively stable, permitting the disregard of inflation or deflation in the environment the entity operates in.

Periodicity assumption- The life of the entity can be divided into time periods for the providing financial reports, this period is usually a year, a quarter, or a month.

See more at about the Conceptual Framework at Accounting Actualities.

January 3, 2014

Generally Accepted Accounting Principles (GAAP) are the ruling accounting principles, standards and procedures that regulate financial accounting. For an understanding of the Codification and the history of GAAP, visit Account Actualities. You will find it time well spent.