With business activities the daily transactions are recorded on reports for companies, these essential reports are what we had previously mentioned as financial statements. Income statement is a financial statement, essential for every company because it shows the losses and gains of that particular company. Income statements usually varies depending on the company’s incomes and revenues.
Formats of presenting income statement
There are two formats of presenting income statement the single step and the multistep income statement. The single step is easy to understand with gains and losses represented first followed by expenses and losses. In multistep income statement it requires various steps before arriving at net income. commence first with gross profit computation which requires deducting cost of sales from sales. Then summation of all operating expenses which includes selling expenses and administrative expenses. Finally, on operating income deduct total operating expenses from gross profit. Usually on calculating income before tax, deduct from or add other expenses and revenues to operating income and to get net income is usually calculated from deducting income tax from income before tax
The income statement usually consists of key components which include
Operating expenses– another component that simply means expenses that are related to regular business operations to provide goods and services to customers.
Revenue -these are the sales made from regular activities of a firm. They are usually presented at the top line of income statement. It can also be described as value received by the business enterprise due to good and services offered to its customers.
Operating profit– these are usually earnings before interest and taxes.
Net income -usually represented at the bottom of the income and usually valued as important in describing a company performance over time.
Income statement is great tool in assessing the financial health of a company. Since it provides detail information on revenue and usually for investment purposes potential investors can assess the company financial state and show significant profits made over time.
Tips:1. Extraordinary items, losses and gains are usually shown at the bottom of the income statement regardless of the format used.
2.Important managerial information can be easily accessed from a multi-step income statement rather than a single step although it’s easy to construct and understand.
3.Net income = Revenue – Expenses
Assignments usually of accounting nature require students to have a vast knowledge of these concepts mentioned above and more. Additionally be familiarized with statistics and mathematical calculations that will be used in financial statement calculations. Be sure to check out our next blog post and find out exactly how to go about calculations on income statement. Our knowledge on the subject as shown by our detailed and comprehensive explanation on the subject and if you ever think I want to pay someone to do my accounting homework we are are the solution to your assignment problem. We are the best in accounting assignments and we deliver in time with exquisite results that guarantees you’re a good grade on the accounting class.