A Brief Description Of The Accounting Income Statement
The main purpose of the accounting income statement is to show the managers as well as the investing agencies and other external agents whether the company made profit or loss during the considered period. The other names by which the accounting income statement is known by are the profit and loss statement, statement of operations, operating statement, and also the earning statement. The accounting income statement is the company’s financial statement that shows the manner in which the company’s revenue had been transformed into its net income. The revenue of the company is the money that is earned from the product and the services that the company renders without taking into account the expenses. It is also known as the ‘top line’. The net income is the resultant amount that is left with the company after all the revenues as well as the expenses have been accounted for. It is also known as the ‘bottom line.’
The accounting income statement is the revenues that are recognized within the specific period of time and also considers the expenses as well as the write-offs that the company does. The main difference between the accounting income statement and a balance sheet is that a balance sheet reflects the earnings for a single moment in time while the accounting income statement considers a specific period of time.
There are two ways of preparing the accounting income statement. The first way is through single step income statement wherein all the revenues are totaled and the expenses are subtracted to obtain the bottom line. The second method is the multi-step income statement that requires several steps to get the bottom line. In this procedure the beginning is done by using the gross profit from which the calculated operating expenses are deducted and the income from the operations is obtained. The income from other revenues and expenses is then added to the income from operations. This leads to the income before taxes. Finally the taxes are deducted and the net income for the period measured is obtained.
The accounting income statements help the creditors as well as the investors in cognizing the past performance of the enterprise as well as the future predictions that could be made. Even though the accounting income statement is quite beneficial to the company as well as the investors yet it has some limitations.