Statement of Earnings (Income Statement) - Financial Analysis and Reporting | Financial Analysis and Reporting - B Com PDF Download

The income statement

The income statement presents the financial results of a business for a stated period of time. The statement quantifies the amount of revenue generated and expenses incurred by an organization, as well as any resulting net profit or loss. The income statement is an essential part of the financial statementsthat an organization releases. The other parts of the financial statements are the balance sheet and statement of cash flows.

The income statement may be presented by itself on a single page, or it may be combined with other comprehensive income information. In the latter case, the report format is called a statement of comprehensive income.

There is no required template in the accounting standards for how the income statement is to be presented. Instead, common usage dictates several possible formats, which typically include some or all of the following line items:

• Revenue
• Tax expense
• Post-tax profit or loss for discontinued operations and for the disposal of these operations
• Profit or loss
• Other comprehensive income, subdivided into each component thereof
• Total comprehensive income

When presenting information in the income statement, the focus should be on providing information in a manner that maximizes information relevance to the reader. This may mean that the best presentation is one in which the format reveals expenses by their nature, as shown in the following example. This format typically works best for a smaller business.

However, relevance to the reader may dictate that a better approach is to present expenses by function, in which case the layout changes to something similar to the following example. This format usually works best for a larger organization that has multiple departments.

Of the presentation methods just described, showing expenses by their nature is the simplest to account for, since it involves no allocations of expenses between segments of the business. However, showing expenses by their function makes it easier to determine where costs are consumed within an organization, and so contributes to the control of costs.

It is useful to include in either form of presentation as many aggregated line items and subtotals as necessary to most clearly convey to the reader the financial performance of the reporting entity.

Detailed Income Statement Example

The Hegemony Toy Company presents its results in two statements by their nature, resulting in the following format, beginning with the income statement:

Hegemony Toy Company
Income Statement
For the years ended December 31

Hegemony then adds on the following statement of comprehensive income:

Hegemony Toy Company
Statement of Comprehensive Income

Similar Terms

The income statement is also known as the profit and loss statement or P&L.