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Learning objective
• Understand he uses and limitation of an income statement
• Understand the content and format of the income statement
• Prepare an income statement
• Explain how to report items in the income statement
• Identify where to report earnings per share information
• Explain intra-period tax allocation
• Understand the reporting of accounting changes and errors
• Prepare a retained earning statement
• Explain how to report other comprehensive income
Preview of chapter 4
Income statement &
related information

Format income Reporting within income Other reporting

Income statement statement statement issues

 Elements • Accounting
 Minimum • Gross profit changes and
 Usefulness
 Limitation
disclosure • Income from operations errors
 Intermediate • Income before income tax • Retained earning
 Quality of
components • Net income statement
 Illustration • Non-controlling interest • Comprehensive
 Condensed • Earning per share income
income • Discontinued operation • Statement of
statement • Intra-period tax allocation changes in equity
• summary
Income statement
• The income statement is the report that
measures the success of company operations
for given period of time.
• It provides investors and creditors with
information that helps them predict the
amounts, timing, and uncertainty of future
cash flows
Usefulness of the income statement
Evaluate the past
performance of the

Provide a basis for

predicting future

Help assess the risk or

uncertainty of achieving
future cash flows
Limitation of the income statement
Companies omit items
from the income statement
that they cannot measure

Income numbers are

affected by the accounting
methods employed

Income measurement
involves judgment