Describe Income Statement Accounts

Income statement accounts summarizes the financial impact of operating activities undertaken by the company.

Describe income statement accounts. The income statement can be run at any time during the fiscal year to show a company s profitability. Income statement accounts are those accounts in the general ledger that are used in a firm s profit and loss statement. The income statement is one of a company s core financial statements that shows their profit and loss over a period of time. These accounts are usually positioned in the general ledger after the accounts used to compile the balance sheet.

The income statement totals the debits and credits to determine net income before taxes. The profit or loss is determined by taking all revenues and subtracting all expenses from both operating and non operating activities. Income statement accounts are also referred to as temporary accounts or nominal accounts because at the end of each accounting year their balances will be closed. The gross profit is derived by netting revenues and the cost of goods sold together and provides an indicator of the ability of a business to set price points that customers will accept and to maintain the cost of the goods and services that it provides.

The income statement contains several subtotals that can assist in determining how a profit or loss was generated. The multiple step income statement presents the subtotal operating income which indicates the profit earned from the company s primary activities of buying and selling merchandise. The income statement often called the profit and loss statement shows the revenues costs and expenses over a period which is typically a fiscal quarter or a fiscal year. This means that the balances in the income statement accounts will be combined and the net amount transferred to a balance sheet equity account.

Revenues expenses and net income. The income statement or profit and loss report is the easiest to understand. It lists only the income and expense accounts and their balances. The income statement is the first financial statement typically prepared during the accounting cycle because the net income or loss must be calculated and carried over to the statement of owner s equity before other financial statements can be prepared.