Lessons
- Income Statement
- Formats of Income Statements
- Principles of Revenue Recognition
- Revenue Recognition - Long-term Contracts
- Revenue Recognition - Instalment Sales
- Revenue Recognition - Barter Transactions
- Expense Recognition
- Inventory Expense Recognition
- Depreciation Expense Recognition
- Amortization Expense Recognition
- Bad Debt Expense and Warranty Expense Recognition
- Financial Reporting of Non-recurring Items
- Operating and Non-operating Components of Income Statement
- How to Calculate Basic Earnings Per Share (EPS)
- Impact of Stock Dividends and Stock Splits on Earnings Per Share (EPS)
- Diluted EPS
- Calculation of Diluted EPS (Convertible Preferred Stock)
- Calculation of Diluted EPS (Convertible Debt)
- Common Size Income Statement
- Performance Measures of a Company
- Comprehensive Income
Operating and Non-operating Components of Income Statement
In the income statement of a company, a distinction is made between income and expenses from the operating and non-operating activities.
Operating activities are the primary business activities arising from businesses’ normal operations. Non-operating items include secondary activities that are not a part of a business’s normal operations. For example, for a manufacturing company, any interest or dividend earned on an investment, or gains (losses) from a foreign exchange transaction are considered non-operating income. These are income and expenses related to investing and financing activities. However, for a financial firm such as a bank, any investing and financing transactions are considered to be operating activities.