Operating section

Revenue - Cash inflows or other enhancements of assets (including accounts receivable) of an

entity during a period from delivering or producing goods, rendering services, or other activities
that constitute the entity's ongoing major operations. It is usually presented as sales minus sales
discounts, returns, and allowances. Every time a business sells a product or performs a service, it
obtains revenue. This often is referred to as gross revenue or sales revenue.[6]

Expenses - Cash outflows or other using-up of assets or incurrence of liabilities (including

accounts payable) during a period from delivering or producing goods, rendering services, or
carrying out other activities that constitute the entity's ongoing major operations.

Cost of Goods Sold (COGS) / Cost of Sales - represents the direct costs attributable to goods
produced and sold by a business (manufacturing or merchandizing). It includes material costs,
direct labour, and overhead costs (as in absorption costing), and excludes operating costs
(period costs) such as selling, administrative, advertising or R&D, etc.

Selling, General and Administrative expenses (SG&A or SGA) - consist of the combined payroll
costs. SGA is usually understood as a major portion of non-production related costs, in contrast
to production costs such as direct labour.

Selling expenses - represent expenses needed to sell products (e.g., salaries of sales people,
commissions and travel expenses, advertising, freight, shipping, depreciation of sales store
buildings and equipment, etc.).

General and Administrative (G&A) expenses - represent expenses to manage the business
(salaries of officers / executives, legal and professional fees, utilities, insurance, depreciation of
office building and equipment, office rents, office supplies, etc.).

Depreciation / Amortization - the charge with respect to fixed assets / intangible assets that
have been capitalised on the balance sheet for a specific (accounting) period. It is a systematic
and rational allocation of cost rather than the recognition of market value decrement.

Research & Development (R&D) expenses - represent expenses included in research and
development.

Expenses recognised in the income statement should be analysed either by nature (raw
materials, transport costs, staffing costs, depreciation, employee benefit etc.) or by function
(cost of sales, selling, administrative, etc.). (IAS 1.99) If an entity categorises by function, then
additional information on the nature of expenses, at least, – depreciation, amortisation and
employee benefits expense – must be disclosed. (IAS 1.104) The major exclusive of costs of
goods sold, are classified as operating expenses. These represent the resources expended,
except for inventory purchases, in generating the revenue for the period. Expenses often are
divided into two broad sub classicifications selling expenses and administrative expenses.[7]
Non-operating section

Other revenues or gains - revenues and gains from other than primary business activities (e.g.,
rent, income from patents, goodwill). It also includes unusual gains that are either unusual or
infrequent, but not both (e.g., gain from sale of securities or gain from disposal of fixed assets)

Other expenses or losses - expenses or losses not related to primary business operations, (e.g.,
foreign exchange loss).

Finance costs - costs of borrowing from various creditors (e.g., interest expenses, bank charges).

Income tax expense - sum of the amount of tax payable to tax authorities in the current
reporting period (current tax liabilities/ tax payable) and the amount of deferred tax liabilities
(or assets).

Irregular items

They are reported separately because this way users can better predict future cash flows -
irregular items most likely will not recur. These are reported net of taxes.

Discontinued operations is the most common type of irregular items. Shifting business
location(s), stopping production temporarily, or changes due to technological improvement do
not qualify as discontinued operations. Discontinued operations must be shown separately.

Cumulative effect of changes in accounting policies (principles) is the difference between the
book value of the affected assets (or liabilities) under the old policy (principle) and what the
book value would have been if the new principle had been applied in the prior periods. For
example, valuation of inventories using LIFO instead of weighted average method. The changes
should be applied retrospectively and shown as adjustments to the beginning balance of
affected components in Equity. All comparative financial statements should be restated. (IAS 8)

However, changes in estimates (e.g., estimated useful life of a fixed asset) only requires
prospective changes. (IAS 8)

No items may be presented in the income statement as extraordinary items under IFRS
regulations, but are permissible under US GAAP. (IAS 1.87) Extraordinary items are both unusual
(abnormal) and infrequent, for example, unexpected natural disaster, expropriation,
prohibitions under new regulations. [Note: natural disaster might not qualify depending on
location (e.g., frost damage would not qualify in Canada but would in the tropics).]
Additional items may be needed to fairly present the entity's results of operations. (IAS 1.85)

Disclosures

Certain items must be disclosed separately in the notes (or the statement of comprehensive
income), if material, including:[5] (IAS 1.98)

Write-downs of inventories to net realisable value or of property, plant and equipment to

recoverable amount, as well as reversals of such write-downs

Restructurings of the activities of an entity and reversals of any provisions for the costs of
restructuring

Disposals of items of property, plant and equipment

Disposals of investments

Discontinued operations

Litigation settlements

Other reversals of provisions

Earnings per share

Because of its importance, earnings per share (EPS) are required to be disclosed on the face of
the income statement. A company which reports any of the irregular items must also report EPS
for these items either in the statement or in the notes.

{\displaystyle {\text{Earnings per share}}={\frac {{\text{Net income}}-{\text{Preferred stock

dividends}}}{\text{Weighted average of common stock shares outstanding}}}} {\text{Earnings per
share}}={\frac {{\text{Net income}}-{\text{Preferred stock dividends}}}{{\text{Weighted average
of common stock shares outstanding}}}}

There are two forms of EPS reported:

Basic: in this case “weighted average of shares outstanding” includes only actual stocks
outstanding.

Diluted: in this case “weighted average of shares outstanding” is calculated as if all stock
options, warrants, convertible bonds, and other securities that could be transformed into shares
are transformed. This increases the number of shares and so EPS decreases. Diluted EPS is
considered to be a more reliable way to measure EPS.