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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
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
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