Accounting Education: Income Statement

What do Investors want to know?

Net earnings figures in the operating activities information is hard to dispute; either the business was profitable, or it was not.  The Income Statement is intended to help investors accomplish the following objectives:

•             Evaluate the past performance of the business
•             Predict future performance of the business
•             Assess the risk of achieving future cash flows

The Income Statement that is included with an Annual Report will be a compilation of the past year.  The income and expense figures shown are a composite of the immediate previous year; a review of several years worth of these statements will help you to assess the past performance and predict future performance for the business, so long as other important variables haven’t experienced extreme changes.

​The period of time that the statement covers is chosen by the business and will vary.  For example, the heading may state:

​"For the Three Months Ended December 31,2015" (The period of October 1 through December 31, 2015.)
​"The Four Weeks Ended December 27, 2015." (The period of November 29 through December 27, 2015.)
​"The Fiscal Year Ended June 30, 2015" (The period of July 1, 2014 through June 30, 2015.)

​Keep in mind that the income statement shows revenues, expenses, gains, and losses; it does not show cash receipts (money you receive) nor cash disbursements (money you pay out).

Source: Accounting Coach; Money Instructor