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.