income statement

Examples of income statement in the following topics:

• Uses of the Income Statement

  • The purpose of the income statement is to show managers and investors whether the company was profitable during the period being reported.
  • The income statement, sometimes referred to as a profit & loss statement, reflects the revenues and expenses for a specific period of time.
  • The primary purpose of the income statement is to show managers and investors whether the company was profitable during the period being reported.
  • In addition to tracking revenue, the income statement can compare expenses from year to year, indicating a firm's success in controlling costs.
  • Explain how interested parties use the income statement to assess a company's profitability

• Defining the Income Statement

  • Income statement is a company's financial statement that indicates how the revenue is transformed into the net income.
  • The important thing to remember about an income statement is that it represents a period of time.
  • The income statement can be prepared in one of two methods.
  • In addition to the Single and Multi-step methods, the income statement can be reported on a cash or accrual basis.
  • Guidelines for statements of comprehensive income and income statements of business entities are formulated by the International Accounting Standards Board and numerous country-specific organizations, for example the FASB in the U.S.

• Other Comprehensive Income

  • Most changes to equity, such as revenues and expenses, appear in the income statement.
  • A few gains and losses are not shown in the income statement since they are not closed to retained earnings.
  • The individual components of the balance can be presented in a separate statement of comprehensive income or a separate section for comprehensive income within the income statement.
  • Other comprehensive income can be reported in its own statement of comprehensive income or in a separate section within the income statement.
  • Summarize the purpose of the comprehensive income section on the financial statement

• Elements of the Income Statement

  • The income statement, or profit and loss statement (P&L), reports a company's revenue, expenses, and net income over a period of time.
  • The income statement reflects a company's performance over a period of time.
  • The income statement can be prepared in one of two methods: single or multi-step.
  • The Single Step income statement totals revenues, then subtracts all expenses to find the bottom line.
  • The "bottom line" of an income statement—often, literally the last line of the statement—is the net income that is calculated after subtracting the expenses from revenue.

• Comparing Statement of Cash Flows with the Income Statement

  • While the income statement focuses on a firm's profitability, the statement of cash flows focuses on a firm's solvency.
  • However, while the income statement focuses on profitability, the statement of cash flows focuses on solvency.
  • The income statement reports the profitability of a company over a stated period of time.
  • However, information of an income statement has several limitations.
  • Describe how a company would use an income statement versus how they would use a statement of cash flows

• Limitations of the Income Statement

  • One of the limitations of the income statement is that income is reported based on accounting rules and often does not reflect cash changing hands.
  • Expenses incurred to produce a product are not reported in the income statement until that product is sold.
  • Another common difference across income statements is the method used to calculate inventory, either FIFO or LIFO.
  • In addition to good faith differences in interpretations and reporting of financial data in income statements, these financial statements can be limited by intentional misrepresentation.
  • Demonstrate how the limitations of the income statement can influence valuation

• The Statement of Equity

  • The statement of equity (and similarly the equity statement, statement of owner's equity for a single proprietorship, statement of partner's equity for a partnership, and statement of retained earnings and stockholders' equity for a corporation) are basic financial statements.
  • GAAP whenever comparative balance sheets and income statements are presented .
  • It may appear in the balance sheet, in a combined income statement and changes in retained earnings statement, or as a separate schedule.
  • Therefore, the statement of retained earnings uses information from the income statement and provides information to the balance sheet.
  • The statement of retained earnings uses information from the income statement and provides information to the balance sheet.

• Defining the Financial Statement

  • Financial statements report on a company's income, cash flow and equity.
  • An entity's financial statement typically includes four basic components: a balance sheet, income statement, cash flow statement, and statement of changes in equity:
  • An income statement reports on a company's expenses and profits to show whether the company made or lost money.
  • In contrast with the balance sheet, which represents a single moment in time, the income statement represents a period of time
  • A cash flow statement shows how changes in income affect cash and cash equivalents, breaking the analysis down to operating, investing and financing.

• Uses of the Financial Statement

  • They make decisions about the business based on their reading of the statements.
  • For large corporations, these statements are often complex and may include an extensive set of notes to the financial statements and explanation of financial policies andmanagement discussion and analysis.
  • The notes typically describe each item on the balance sheet, income statement, and cash flow statement in further detail.
  • Notes to financial statements are considered an integral part of the financial statements.
  • One of the uses of financial statements is as a budgeting tool, as in this example.

• Defining the Statement of Cash Flows

  • A statement of cash flows is a financial statement showing how changes in balance sheet accounts and income affect cash & cash equivalents.
  • In financial accounting, a cash flow statement, also known as statement of cash flows or funds flow statement, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities.
  • Essentially, the cash flow statement is concerned with the flow of cash in and out of the business.
  • The cash flow statement has been adopted as a standard financial statement, because it eliminates allocations, which might be derived from different accounting methods, such as various timeframes for depreciating fixed assets.
  • Indicate the purpose of the statement of cash flows and what items affect the balance reported on the statement