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Measuring and Reporting Financial Performance Income Statement formal statement that shows the results of operations of a business

ss entity for a given period of time. It shows whether the profit-goal of the company is attained or not. Performance Net profit or net income is frequently used as a measure of the performance of a business entity. The computation of net income or loss of a going-concern is an important function of financial accounting. Income Income > Expenses = Net Income Income < Expenses = Net Loss Elements of the Income Statement Income Expenses nominal accounts Income It represents increases in economic benefits, during the accounting period, related to increases of assets and decreases of liabilities, or both. It will ultimately increase the owners equity. The definition of income encompasses both revenues and gains. Income also includes unrealized gains, for example, gain arising from the revaluation of marketable securities, or gain resulting from an increase in the value of property, plant and equipment. Revenues These are inflows of assets or outflows of liabilities arising from the primary activities of a business entity. Examples: sales revenue service revenue professional fees Gains These may also arise from activities that are considered as ordinary though these activities are not part of the normal operations of the business entity. These may also result from disposing assets other than the ones that are being sold in the normal course of operations of the business entity. Expenses These are decreases in economic benefits during the accounting period, in the form of outflows or depletions of assets or in the form of incurring liabilities. These will ultimately decrease owners equity. Losses

These also represent decreases in economic benefits and as such, they are no different in nature from expenses. Losses arise from activities that are considered as ordinary although they are not part of the normal operations of the business entity. These may also result from accidents or disasters such as fire and flood and disposal of non-current assets. Contents of Income Statement Heading st line registered name of the business 1 entity 2nd line title of the statement Income Statement 3rd line period of time it covers. Contents of Income Statement Body 1. Revenues and other operating income 2. Operating expenses 3. Results of operating activities 4. Finance Costs 5. Income tax expense 6. Net income or net loss for the period Operating Expenses Cost of Sales Marketing and Distribution Expenses (Selling Expenses) Store supplies expense Advertising expense Delivery expense Salesmens commission General and Administrative Expenses Office salaries expense Rent expense Depreciation office equipment Doubtful accounts expense Representation expense Forms of Income Statement Nature of Expense Method Expenses are aggregated according to nature. Function of Expense Method Expenses are classified according to their functions, such as Cost of Sales, Distribution Costs, General and Administrative Expenses.