Inception Method

Financial Statements

Financial Accounting’s most important financial reports are: Income Statement, Statement of Retained Earnings, Balance Sheet, and Statement of Cash Flows. Each statement has a different reporting goal which is discussed in the below. These statements are supplemented with footnotes and necessary disclosures for better understanding of the financial position and operation results of the company.

Income Statement measures and reports the results of operations for a specified period. It measures whether a company has made profit (also called net income) or loss from its business activities during a specified period by reporting on revenues and expenses in the period.

Net Income (Net Loss) = Revenues - Expenses

The difference between the revenues and expenses may result in profit (also called net income) or loss (also called net loss). Other names used for the Income Statement are Profit & Loss Statement and Statement of Operations.

There are two ways of reporting Income Statement – “simple” format and “multiple-step” format. A simple format of Income Statement contains only two categories – Revenues and Expenses – and does not attempt to distinguish the recurring revenues and expenses of the company from its principal ongoing day-to-day business operations from the other on the side, non-recurring, incidental, infrequent or unusual events (see Class Notes 1 for sample of it).

In contrast, the Multiple-Step format of Income Statement, first reports on recurring revenues and expenses of the company from its principal ongoing day-to-day business operations, and then reports on the other revenues and expenses from non-principal business activities.

Recurring