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, 2010.”)
Softbyte’s income statement is prepared from the data appearing in the owner’s
equity columns of Illustration 1-8.
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.