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Economics While the Accountingbase.com website provides wide ranging information on Accounting and related topics, we're also quite knowledgable in the field of Economics. Micro and macro economics is simplified and clearly explained on a one-on-one basis.
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The Income Statement - An example

The typical Income Statement will show six different categories of income:
  • Gross Profit
  • Income from Operations
  • Income before tax from continuing operations
  • After Tax Income from continuing operations
  • Income before extraordinary items
  • Net Income
These categories are shown in the Income Statement below.

Pure Fiction Inc.
Statement of Operations
 (in thousands, except per share data)
Sales/Revenue 2,413,215 The top line
Less cost of goods sold 166,472 The direct cost of the goods sold
Gross Profit/Income
2,246,743
 Profit before overhead costs
   General & Admin.          Expenses:
Wages - office staff 89,000 Admin. salary
Depreciation 200,150 Tied to asset value
Insurance 49,850 As unavoidable as taxes & death!
   Marketing Expenses:
Marketing charges 97,800 As opposed to Selling expenses
   Selling Expenses:
Advertising expense 107,350 Significant for some companies
Sales Commission 225,150 Directly related to sales level
   R&D Expenses:
R&D Charges 450,125 Important to keep the business going
   Total Operating Expenses
1,219,425
   Net Income from Operations
1,027,318
   Non-operating income:
Interest earned 95,000 Mainly from short-term investment
Income from Insurance claim 25,000 Unlikely! but it happens a few times
Legal settlement 36,000 Legal success
   Total Non-operating income
156,000
   Non-Operating Expense:
Interest paid 67,000 On both long & short-term obligations
Legal payment 34,000 Attorney fees etc.
   Total Non-operating Expenses
101,000
   Income before Tax from Continuing Operations
1,082,318
Provision for Income Taxes 397,000 Driven by the tax bracket
   After Tax Income from Continuing Operations
685,318
Income/Loss from Discontinued Operations 250,000
   Income before Extraordinary Items
935,318
Extraordinary Gains/losses 23,000 Outside the scope of the business
Cumulative effect of changes in accounting principle 15,000
   Net Income
973,318
 The bottom line
Go to: Income Statement

"Extraordinary" Stuff!

Extraordinary Items: These arise from unusual and nonrecurring transactions. Included in the list of possible extraordinary items are:
  • Gains or losses from employee industrial actions
  • Gains/losses from the abandonment of a property
  • Gains/losses from acts of God
Discontinued Operations: Companies are required to disclose separately on their income statement, gains or losses on discontinued operations. This is shown on the income statement net of taxes, immediately below income from continuing operations.

In the first year of the discontinued operation, the income statement may include one line showing the gain or loss on discontinued operation and another line showing the gain or loss on the disposal of the assets sold. Changes in accounting principle: As GAAP changes, a company need to adjust it's accounting to incorporate the changes. This will invariable affect the income statement. Disclosure rules require that the company disclose the effect of a change in accounting rules separately on the income statement.

The Impairment of Goodwill and Accounting for Stock Option are two recent changes in GAAP that may result in separate disclosure on the income statement.

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