Income Statement
Expenses
(Costs that only benefit the current period or the allocation of unexpired costs to the current period for the benefit received) are reported at their gross amounts
Revenues
Are reported at their gross amounts (less allowance for returns and discounts given
Gains
Are reported at their net amounts (i.e., proceeds less net book value). A gain is the recognition of an asset either not in the ordinary course of business (e.g., gains on the sale of a fixed asset) or without the incurrence of an expense (e.g., finding gold on the company's property)
Losses
Are reported at their net amounts (i.e., proceeds less net book value). A loss is cost expiration either not in the ordinary course of business (e.g., loss on the sale of investment assets) or without the generation of revenue (e.g., abandonment
Examples of Expired Costs (Expenses)
COGS, Insurance expense, Depreciation expense, and Patents expense
Examples of unexpired costs (assets)
Inventory, Prepaid, Net book value assets, and unexpired costs of patents
Uses of the Income Statement
The income statement is useful in determining profitability, value for investment purposes, and credit worthiness. The income statement is also useful in predicting information about future cash flows (e.g., the amounts, timing, and uncertainty of cash flows) based on past performance
What is the purpose of the income statement?
The purpose of the income statement is to provide information about the uses of funds in the income process (i.e., expenses), the uses of funds that will never be used to earn income (i.e., losses), the sources of funds created by those expenses (i.e., revenues), and the sources of funds not associated with the earnings process (i.e., gains)
Unexpired Costs
costs that will expire in future periods and be charged against revenues from future periods
Cost
an amount expended for items such as capital assets, services (e.g., payroll), and merchandise received. Cost is the amount actually paid for something