Starting a Business All-in-One For Dummies, 3rd Edition

Chapter 2

Reporting Profit or Loss in the Income Statement

IN THIS CHAPTER

Looking at typical income statements

Being an active reader of income statements

Asking about the substance of profit

Handling out-of-the-ordinary gains and losses in an income statement

Correcting misconceptions about profit

This chapter lifts up the hood and explains how the profit engine runs. Making a profit is the main financial goal of a business. (Not-for-profit organizations and government entities don’t aim to make profit, but they should break even and avoid a deficit.) Accountants are the profit scorekeepers in the business world and are tasked with measuring the most important financial number of a business. Fair warning, though: Measuring profit is a challenge in most situations because determining the correct amounts for revenue and expenses (and for special gains and losses, if any) is no walk in the park.

Of the three primary financial statements (the balance sheet, the income statement, and ...