Major elements of the income statement
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3. The income statement is the report that measures the success of company operations for a given period of time. It is also called profit and loss statement for some small business. It is used to determine profitability, investment value, and creditworthiness. In general, the audience for this document is investors and creditors, who predict the amounts, timing, and uncertainty of future cash flows. (Kieso, 2016)
Major elements of the income statement are revenues, expenses, gains, and losses.
Revenues are company’s sales, service fees, interest, dividends, and so forth, which are the company’s main income sources from its regular operations. Expenses are outflows which is generated from the company’s regular operation, such as cost of goods sold, selling expenses, administrative expenses, and so on. If the business has inflows or outflows from outside of its regular operations, then they are called gain or loss, respectively. These gains
and losses have unique characteristics: Unusual and infrequent. They need to be separately reported on the income statement because they are not a part of regular operation. If they were commingled with revenues and expenses, the income statement will mislead investors or creditors, who make decisions based on the financial statements.
References:
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2016). Intermediate accounting. Hoboken, NJ: Wiley.
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