![]() As was just stated, the typical accounting cycle is a year, a month, or perhaps a quarter. A cycle is a period of time in which a series of accounting activities are performed. Therefore, the accounting process is cyclical. The precise time period covered is included in the headings of the income statement, the retained earnings statement, and the statement of cash flows. We will hold off for now on the other three financial statements- the retained earnings statement, the balance sheet, and the statement of cash flows -and learn about those later.Īccounting is practiced under a guideline called the time period assumption, which allows the ongoing activities of a business to be divided up into periods of a year, quarter, month, or other increment of time. You have just learned about the income statement-the accounts it displays and its format. Single underline just above the result of a calculation (two of these)ĭouble underline below the final net income result The word “Expense” on expense account names Two Columns of numbers-left one for listing items to be sub-totaled right one for resultsĭollar signs go at the top number of a list of numbers to be calculatedĬategory headings for revenue and expenses only if there is more than one item listed in the categoryĮxpenses listed in order of highest to lowest dollar amounts, except for Miscellaneous Expense, which is always last SAMPLE INCOME STATEMENTĬomplete heading: Company Name, Name of Financial Statement, Date It does not include any revenue or expenses from before or after that block of time. ![]() ![]() The income statement relies on the matching principle in that it only reports revenue and expenses in a specified window of time. The income statement answers a business’s most important question: How much profit is it making? It is limited to a specific period of time (month or year) from beginning to end. If the difference is negative, there is a net loss that is typically presented in parentheses as a negative number. If the difference is positive, there is a profit, or net income. Revenue is shown first a list of expenses follows, and their total is subtracted from revenue. It is based on the following equation: Revenue - Expenses = Net income (or Net loss). The income statement is a report that lists and summarizes revenue, expense, and net income information for a period of time, usually a month or a year. The net income from a business’s operations for a period of time is so important to business people and investors that one financial statement-the income statement-is dedicated to showing what that amount is and how it was determined.
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