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Income statement of a business shows _______

  • The income statement of a business shows the net operating result of the specified period.
  • The income statement reports the success or profitability of the company's operations over a specific period of time. 
  • The income statement lists revenues first, followed by expenses. Finally, the statement shows net income (or net loss).
  • When revenues exceed expenses, net income results. When expenses exceed revenues, a net loss results. Although practice varies, we have chosen in our illustrations and homework solutions to list expenses in order of magnitude.
  • Note that the income statement does not include investment and dividend transactions between the stockholders and the business in measuring net income.
  • For example, as explained earlier, the cash dividend from Softbyte Inc. was not regarded as a business expense.
  • This type of transaction is considered a reduction of retained earnings, which causes a decrease in stockholders' equity.