An Income Statement measures a companies performance for a period of time. The income statement is one of the most important financial statements for an outside user to critically analyze. The income statement is also referred to as"the statement of income" or "profit or loss statement (P&L)".
The income statement allows investors to analyze how much revenue one company makes and the expenses incurred while comparing it to other companies in a similar industry. It can help investors determine future cash flows.
This is a basic guideline of an Income Statement:
The operating section of the income statement is the most important since it’s what drives a business. It is basically the daily activities a business commits. An example is of a basketball team; it makes money by revenue generated through tickets, concession stands, team clothing and etc. The non-operating section of an income statement is income/expenses & gains/losses generated from once and a life time transactions. So if a basketball team sells its parking lot or makes money by receiving interest off stocks; it is considered a "non-operating" item on the income statement, since it is not in business to do those two activities. Unusual or Infrequent items are items that rarely occur however are not considered both “unusual and infrequent". A common example is if a basketball team was to incur damage to their stadium due to natural disasters, however it can be frequent depending upon the location of the stadium. If the item was both unusual and infrequent it would be considered an "extraordinary items".
The next section consists of discontinued operations and extraordinary items; both shown on the income statement net of tax.
Example:
Adequate Disclosure, Inc. has the following information related to the financial statements of 201X. Assume a 35% tax rate.
