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Financial Statements: Income Statement

The document discusses the 5 main financial statements used in financial accounting: the income statement, statement of comprehensive income, balance sheet, statement of cash flows, and statement of stockholders' equity. It provides a brief overview of what each statement covers, including revenues and expenses for the income statement, net income and other comprehensive income for the statement of comprehensive income, assets, liabilities and equity for the balance sheet, cash flows from operating, investing and financing activities for the statement of cash flows, and changes in equity for the statement of stockholders' equity.

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98 views2 pages

Financial Statements: Income Statement

The document discusses the 5 main financial statements used in financial accounting: the income statement, statement of comprehensive income, balance sheet, statement of cash flows, and statement of stockholders' equity. It provides a brief overview of what each statement covers, including revenues and expenses for the income statement, net income and other comprehensive income for the statement of comprehensive income, assets, liabilities and equity for the balance sheet, cash flows from operating, investing and financing activities for the statement of cash flows, and changes in equity for the statement of stockholders' equity.

Uploaded by

Sha Ron
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Financial Statements

Financial accounting generates the following general-purpose, external, financial statements:

1. Income statement (sometimes referred to as "results of operations" or "earnings


statement" or "profit and loss [P&L] statement")
2. Statement of comprehensive income
3. Balance sheet (sometimes referred to as "statement of financial position")
4. Statement of cash flows (sometimes referred to as "cash flow statement")
5. Statement of stockholders' equity

Income Statement
The income statement reports a company's profitability during a specified period of time. The
period of time could be one year, one month, three months, 13 weeks, or any other time interval
chosen by the company.

The main components of the income statement are revenues, expenses, gains, and losses.
Revenues include such things as sales, service revenues, and interest revenue. Expenses
include the cost of goods sold, operating expenses (such as salaries, rent, utilities, advertising),
and nonoperating expenses (such as interest expense). If a corporation's stock is publicly traded,
the earnings per share of its common stock are reported on the income statement. (You can
learn more about the income statement at Explanation of Income Statement.)

Statement of Comprehensive Income


The statement of comprehensive income covers the same period of time as the income
statement, and consists of two major sections:

 Net income (taken from the income statement)


 Other comprehensive income (adjustments involving foreign currency translation, hedging,
and postretirement benefits)
The sum of these two amounts is known as comprehensive income.
The amount of other comprehensive income is added/subtracted from the balance in the
stockholders' equity account Accumulated Other Comprehensive Income.

Balance Sheet
The balance sheet is organized into three parts: (1) assets, (2) liabilities, and (3) stockholders'
equity at a specified date (typically, this date is the last day of an accounting period).

The first section of the balance sheet reports the company's assets and includes such things as
cash, accounts receivable, inventory, prepaid insurance, buildings, and equipment. The next
section reports the company's liabilities; these are obligations that are due at the date of the
balance sheet and often include the word "payable" in their title (Notes Payable, Accounts
Payable, Wages Payable, and Interest Payable). The final section is stockholders' equity, defined
as the difference between the amount of assets and the amount of liabilities. (You can learn
more about the balance sheet at Explanation of Balance Sheet.)

Statement of Cash Flows


The statement of cash flows explains the change in a company's cash (and cash equivalents)
during the time interval indicated in the heading of the statement. The change is divided into
three parts: (1) operating activities, (2) investing activities, and (3) financing activities.

The operating activities section explains how a company's cash (and cash equivalents) have
changed due to operations. Investing activities refer to amounts spent or received in transactions
involving long-term assets. The financing activities section reports such things as cash received
through the issuance of long-term debt, the issuance of stock, or money spent to retire long-term
liabilities. (You can learn more about the statement of cash flows at Explanation of Cash Flow
Statement.)

Statement of Stockholders' Equity


The statement of stockholders' (or shareholders') equity lists the changes in stockholders' equity
for the same period as the income statement and the cash flow statement. The changes will
include items such as net income, other comprehensive income, dividends, the repurchase of
common stock, and the exercise of stock options.

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