Earnings Per Share of Common Stock

If the business is a corporation with common stock that is publicly traded, it is required that the net income and discontinued operations (if any) be shown on the income statement on an after-tax, per-share basis.

Notes To Financial Statements

The notes (or footnotes) to the income statement and to the other financial statements are considered to be part of the financial statements. The notes inform the readers about such things as significant accounting policies, commitments made by the company, and potential liabilities and potential losses. The notes contain information that is critical to properly understanding and analyzing a company's financial statements.

It is common for the notes to the financial statements of large companies to be 10-20 pages in length. Go to the website for a company whose stock is publicly traded and locate its annual report. Look at the notes near the end of the annual report.

Other Income Statement Formats

The single-step and multiple-step income statement formats are the required formats when the statement is distributed to people and places outside of the company. The company's management, however, might prefer other formats when the profit and loss statement remains inside the company.

For example, a company might want to prepare an income statement—for inside the company only—that focuses on the contribution margin instead of the gross profit or gross margin. Such a format may provide insight on how the company's profits change as sales change. This format also shows the total amount of fixed expenses (those expenses that will not change as sales change). This type of internal income statement is shown below (and columns have been added to show the amounts by product line).


As you can see above, $2,000 of fixed expenses are common to both product lines. In other words they cannot be traced directly to Product Line 1 or Product Line 2. Rather than mislead someone, the expenses are not arbitrarily divided up between the product lines.

Remember that this format is not acceptable for distribution outside of the company—its accessibility should be limited to the members of the company's management. In fact, this type of income statement is usually covered as part of managerial accounting, not financial accounting. It is shown here to let you know that income statement formats other than the single-step and multiple-step are permissible when they stay within a company, and may prove very useful to a company's managers.

Comprehensive Income

The net income reported on a company's income statement is also one of the two major components of the financial statement known as the Statement of Comprehensive Income.

The format of the statement of comprehensive income consists of the following:

  • Net income (or loss) from the income statement, and
  • Other comprehensive income

Examples of the items reported as other comprehensive income include:

  • Foreign currency translation adjustments
  • Unrealized gains/losses on postretirement benefit plans

NOTE: Prior to 2018, the changes in the fair value of equity (stock) investments were reported as other comprehensive income. Today, the changes in fair value (unrealized gains and/or losses on securities) are reported on the income statement as part of a company's net income.

Effect on Stockholders' Equity

A corporation's net income is also reported as an increase to the corporation's retained earnings. (Retained earnings is reported on the balance sheet as part of stockholders' equity.) Changes to retained earnings are one part of the corporation's financial statement, Statement of Changes in Stockholders' Equity.

The second component of a corporation's comprehensive income, other comprehensive income, is reported as an increase to the corporation's accumulated other comprehensive income. (Accumulated other comprehensive income is reported on the balance sheet as part of stockholders' equity. The changes to accumulated other comprehensive income are also presented in the financial statement, Statement of Changes in Stockholders' Equity.)

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You should consider our materials to be an introduction to selected accounting and bookkeeping topics, and realize that some complexities (including differences between financial statement reporting and income tax reporting) are not presented. Therefore, always consult with accounting and tax professionals for assistance with your specific circumstances.