Chapter 5

Getting Paid with the Income Statement

In This Chapter

arrow Surveying the different parts of the income statement

arrow Using the income statement to evaluate a company’s ability to make money

The income statement is a report that explains all about the revenues that a company makes and the costs it incurs so that it can evaluate its profitability. Throughout this chapter, I break down the income statement in the order that it’s written, starting with the total amount of money made and then going through all the additional revenues and all the costs, until I end with a profit (or loss, if your company isn’t doing so well).

Adding Income and Subtracting Costs: What’s on the Income Statement

How can you tell whether a company is successfully generating wealth beyond the wildest dreams of its owners, providing them with depths of luxury understood only through ancient mythology, or dooming them to a life of desperate poverty from which they’ll never escape? By looking at the company’s income statement. Simply put, the income statement is a financial report that describes whether a company is thriving in its pursuit of income or flushing money down the proverbial toilet.

Income statements come in two types: single step and multiple step. They’re essentially the same thing except that ...

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