Types Of Income Statement

Introduction Understanding these financial statements is helpful when preparing them. The statements simplify a variety of transactions and activities, making them understandable and meaningful. It should be noted that the income statement and statement of cash flows are both for a period of time, but the balance sheet is for a point in time. These statements provide relevant information for internal and external users.

The Income Statement

An income statement is sometimes referred to as the statement of operations, earnings statement, or profit and loss statement. (Melicher, 2014) It reports the revenues first, followed by expenses, and resulting with net income or loss for a specific period of time, such as a quarter or year. Net income

(Melicher, 2014) It reports the assets at the top, followed by the liabilities and owner’s equity. The assets are the physical items owned by a business, used to carry out production and sales transactions. Assets have the capacity to provide future services, producing cash flows. On the balance sheet, the most liquid assets are listed first. The major types of assets are current assets and fixed assets. Current assets are cash and other assets that are expected to be converted into cash or used up within one year. They represent the working capital needed to carry out the normal business operations. Some current assets are: cash, short-term investments, receivables, inventories, and prepaid expenses. Fixed assets, also called property (land), plant and equipment, are the physical facilities used in the production, storage, display, and distribution of the products of a firm. These assets provide services to business for a number of years. Another type of asset is intangible’ assets; they hold rights that will result from the ownership of long-lived assets that you cannot see or feel. They may be in the form of contracts or

Together they compromise equity. Common stock is the number of outstanding shares carried at stated or par value and the capital paid-in excess of par. (Melicher, 2014) Its main purpose is to maintain distinction between paid-in capital and retained earnings. Preferred stock is an additional type of stock that has some preference over common stock. It is listed first in the stockholders’ equity section because of its dividend and liquidation preferences. Companies have the option to issue cash or noncash assets at par value or no-par value. The retained earnings are net income reserved for future use. It is invested in the firm’s current or fixed assets but it cannot be