The Purpose of an Income Statement
The income statement is the first of the four major financial statements and its primary purpose is to show how much money the business earned (or lost) during the given accounting period.
Key Elements of an Income Statement
- Report the net income or loss over a specific period
- List the revenues and expenses that occurred over the period
Income Statement Formats
- Single-Step Income Statement
- Lists all revenues together and all expenses together.
- Not typically used for financial reporting because it is not detailed enough
- Multi-Step Income Statement
- Separates operating activities from non-operating activities
- Measures income in steps
- Gross Profit: Income from sales after deduction only the direct costs of producing or purchasing the goods sold.
- Operating income: Income earned from the primary operations of the business.
- Earnings before Tax: Income earned from both operating and non-operating activities, before income taxes.
- Net Income: Total income earned after income taxes.
- Earnings per Share: Net income expressed on a per share basis.
- This format is used in financial reporting
