Income StatementThe income statement reports a corporation's net income for the period of time indicated in its heading. The income statement is also known as the statement of income, statement of earnings, statement of operations, profit and loss statement, or P&L. The following is a condensed version of an income statement for a regular corporation that sells products:
*The period of time could be a year, quarter, month, 13 weeks, eight months, etc. **The earnings per share must be reported if a corporation's shares of stock are traded on a stock exchange. ***Every financial statement should inform the reader that the notes are an integral part of the financial statements and should be read for important information.Amounts on the Income Statement The historical cost principle means that most of the amounts shown on the income statement reflect a corporation's vast number of actual transactions that were recorded by the accounting system. In addition the income statement will include some adjusting entry amounts entered by the accountant in order to comply with the accrual method of accounting. Revenues Revenues are the amounts earned by a corporation through its main activities such as:
- Selling products. These are reported as net sales, net product revenue, revenues from net sales, revenues, etc.
- Providing services. These are likely reported as net service revenues or revenues.
- When they best match revenues. The cost of goods sold and sales commission expense should be reported in the same period as the related sales are reported.
- When they have expired or were used. The $400,000 cost of a building that is expected to be used for 40 years will often be reported as annual depreciation expense of $10,000.
- When they have no future value which can be measured. The current year's $50,000 advertising campaign will be reported as an expense on the current year's income statement. The reason is that the future value of the current year's ads cannot be determined.
- When costs are too small to justify allocating them to future periods. As an example, the entire $300 cost of a paper shredder will be expensed immediately even though it is expected to be used for several years.