The income statement is perhaps the commonly studied document that the accounting department produces, since it reveals the results of operations and related activities for a business entity. For this reason, the accountant must be careful to create an income statement that reveals the maximum amount of information to the reader without presenting an overwhelming amount of data. To do so, the income statement must be structured to fit the revenue and expense line items that are most crucial within certain industries- for example, development costs are exceedingly important in the software industry, while they are usually an inconsequential item in a consulting business. Thus there could be an infinite variety of acceptable under GAAP, some activities- such as extraordinary items, accountings changes and discontinued operations- must be announced for in a particular manner. Thus, this chapter is designed to give the reader the maximum amount of information about those income statements line items that require specific presentation formats.
Format of Income Statement
The basic format of income statement begins with the name of the business entity, the name of report, and period over which it's financial performance is being presented. An example of this shown in the above mentioned example, if the cash basis of accounting is used, this should be noted in the report header, since the reader will otherwise assume that the more common accrual method is being used. The first set of information presented is the revenue from continuing operations, which consists of those revenues from expected or current cash inflows resulting from a company’s regular earning process. The exact format of revenue reporting used is driven more by custom than by the GAAP. In the above mentioned information, revenues are reported by product line, but they could just as easily be reported by geographic region, individual products, or subsidiary. They may also be lumped together into a single line item.
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