Chapter 2, Problem 5P

Summary Introduction

To explain:The order of items in an income statement.

Introduction:

Income statement:

The income statement shows the financial performance of a business entity. It takes into account all the transactions related to the expenditures as well as revenues for a reporting time period. The outcome for that reporting period is computed by deducting the total expenditures incurred from the revenues earned, and is termed as net profit or loss.

Income statement format:

Income statement can be prepared in two formats. The choice between single-step income statement and multi-step income statement depends entirely on the structure of the entity. Regardless of the format used, revenues are presented prior to expenditures.