Income Statement

Income Statement

The income statement reports the revenues and expenses for a specific period of time. (In Softbyte’s case, this is “For the Month Ended September 30, 2012.”) Softbyte’s income statement is prepared from the data appearing in the owner’s equity columns of Illustration below.

Income Statement

The income statement lists revenues first, followed by expenses. Finally, the statement shows net income (or net loss). Net income results when revenues exceed expenses. A net loss occurs when expenses exceed revenues.

Although practice varies, we have chosen in our illustrations and homework solutions to list expenses in order of magnitude. (We will consider alternative formats for the income statement in later chapters.)

Note that the income statement does not include investment and withdrawal transactions between the owner and the business in measuring net income. For example, as explained earlier, Ray Neal’s withdrawal of cash from Softbyte was not regarded as a business expense.