Professional Documents
Culture Documents
$ 270,000
80,000
30,000
16,000
10,000
8,000
2,000
146,000
$ 124,000
48,360
$ 75,640
The income statement starts with a heading made up of three lines. The heading contains: (1) the name
of the company, (2) the title of the financial statement, and (3) the period covered by the report.
The income statement of a service type business is quite simple. Revenue accounts are presented first
followed by all of the company's expenses. The resulting amount is then subjected to income tax. Note:
Income tax treatment depends upon the tax laws of the state/country.
Some income statements of service businesses present "Cost of Service" in a separate line after
revenues. It shows the expenses that are directly associated with the services rendered.
$ 960,000
680,000
$ 280,000
$ 168,000
$ 20,000
(12,000)
8,000
$ 176,000
68,640
$ 107,360
Example 2 shows how an income statement of merchandising and manufacturing businesses would look
like. In the above example, a separate line for "Cost of Sales" is presented. It shows the cost of items
sold, hence also known as "Cost of Goods Sold".
Selling expenses were shown separately from administrative expenses. Selling expenses pertain to
expenses directly related to the selling and marketing functions. Administrative expense pertain to those
associated with the activities of the administration such as billing and collection, hiring, board meetings,
etc.
The difference between all revenues and all expenses is then subjected to income tax to arrive at the
company's net income.
Conclusion
Though they may be presented differently, all income statements have the same goal and purpose. An
income statement presents a company's revenues and expenses over a particular period of time, to give
the users information about the operating performance of the company. When studying company figures,
it is good to compare income statements over different periods or with income statements of other
companies.