The Income Statement
Single-step through diluted EPS — how profit is built up, line by line.
The income statement answers one question — how did the business perform over the period? — and the order of its lines is how it answers it. You start with the two formats, single-step and multi-step, and why each subtotal of the multi-step statement (gross profit, income from operations, income before tax) tells a reader something different. You then build the multi-step statement yourself, first in stages and then complete. US GAAP versions of both formats sit in an optional final section that IFRS students can skip. From there the chapter moves beyond a single statement: integrated cases where the income statement has to agree with the rest of the financial statements, and held-for-sale assets and discontinued operations under IFRS 5, which separate the business that will continue from the part that will not. It closes with earnings per share — basic first, then diluted, where options and convertibles are assumed to become shares — and integrated capstones.
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01Format Foundations
single-step versus multi-step is a presentation choice, not a different set of facts. Same net income, different amount of detail on the way down.
02Building the Multi-Step Statement
gross profit, operating income and net income are three separate subtotals a reader expects to find. Get each line into the right one.
03Integrated Financial Statements
in practice the income statement rarely stands alone. It is the first output pulled from an adjusted trial balance, and the other statements follow from it.
04Held for Sale & Discontinued Operations
IFRS 5 splits a business into two stories on one statement — continuing operations line by line, discontinued operations in a single net figure.
05Earnings Per Share (Basic)
EPS starts with the weighted-average share count, not the year-end count. Shares issued or bought back mid-year only count for the part of the year they existed.
06Earnings Per Share (Diluted)
diluted EPS asks "what if every convertible security converted". It can only ever be equal to or lower than basic — anything that would raise it is antidilutive and excluded.
07Integrated Capstones
the income statement stops being an isolated exercise once it is one of three statements that all have to agree with the same underlying facts.
08Full Multi-Step StatementsOptional · US GAAP
for US GAAP students — single-step and multi-step statements in US GAAP presentation. IFRS students can skip this section; the IFRS versions are in the first two sections.