Wize University Introduction to Financial Accounting Textbook > Financial Statements
Preparing the Income Statement
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Preparing the Income Statement
- Preparing the income statement in proper form requires you to remember the difference between operating and non-operating revenues and expenses.
- The multi-step income statement is organized into specific steps that describe how well the company is managing its various expenses.
Statement Heading
- First line is always the name of the company
- Second line is the name of the statement
- This line should contain the word partial if you not preparing the entire statement Example: Partial Income Statement
- Third line is the date written in this format: "For the period ended [Date]" Example:
- For the year ended December 31, 2020
- For the quarter ended March 31, 2021
- For the month ended October 31, 2022
- Fourth line: the currency and unit Examples:
- (in Canadian dollars)
- (in million of US dollars)
- (in thousands of Euros)
Gross Profit
- Sales and Service Revenue
- Less: Cost of Goods Sold (Cost of Sales)
- Equals: Gross Profit
Operating Income
- Gross Profit
- Less: Total Operating Expenses
- Equals: Operating income
Earnings before Tax
- Income from Operations
- Add: Non-operating revenues
- Less: Non-operating Expenses
- Equals: Earnings before tax
Net Earnings (Net Income)
- Earnings before tax
- Less: Income tax expense
- Equals: Net Earnings
Earnings per Share
- Net Earnings
- Divided by: Average Outstanding Common Shares
- Equals: Earnings per share
0:00 / 0:00
Example: Preparing an Income Statement
Karlini Entertainment Inc. specializes in a variety of entertainment products such as party games. The following financial information is available and the company needs your help in preparing the financial statements for the year ended October 31, 2020.
Prepare the company's income statement in proper form.
Mark Yourself Question
- Grab a piece of paper and try this problem yourself.
- When you're done, check the "I have answered this question" box below.
- View the solution and report whether you got it right or wrong.
Practice: Preparing an Income Statement
Prepare in proper form the income statement for ABC Corp. for the year ended December 31st, 2020 using the following information:
The company has an average of 20,000 outstanding common shares and a tax rate of 30%.