ASC 205, Presentation of Financial Statements, and ASC 225, Income Statement, provide the baseline authoritative guidance for presentation of the income statement for all US GAAP reporting entities. The income statement can be presented in a “one-step” or “two-step” format. In a “one-step” format, revenues and gains are grouped together, and expenses and losses are grouped together. These amounts are then totaled to show net income or loss. In a “two-step” format, subtotals are used to show decision-useful line items such as gross margin and operating income separately from non-operating income and net income or loss. Many commercial and industrial reporting entities use a “two-step” format.
Although income statements are generally presented in the formats noted above, reporting entities can also present an income statement by function (e.g., cost of sales, selling expense, administrative expense) or by nature (e.g., payroll expense, advertising expense, rent expense). The latter approach may be easier to prepare in some cases, but it does not present cost of sales, so no gross margin information can be determined.
S-X 5-03 indicates the various line items that, if applicable, should appear on the face of income statements filed with the SEC. Figure FSP 3-1 illustrates the format of a typical “two-step” income statement.
Sample income statement
The captions included in an income statement will vary across reporting entities based on what is applicableto each entity's business. Figure FSP 3-1 is a sample income statement that includes the line items required by S-X 5-03 (in bold font) and other commonly used captions. Line items that are not applicable to a reporting entity need not be presented. If S-X 5-03 indicates the placement of the detailed information is optional, the caption is in regular font. Additionally, US GAAP requires certain disclosures, which can generally be presented in the footnotes or on the face of the income statement.
Detailed presentation and disclosure requirements are addressed in the relevant sections of this chapter and other chapters of this guide (where applicable), as noted in the last column of the figure.
Figure FSP 3-1
Sample consolidated “two-step” income statement
FSP Corp
Consolidated Statements of Operations
For the years ended December 31, 20X3, 20X2, and 20X1
20X3 | 20X2 | 20X1 | FSP chapter or section reference | |
In millions $, except per share data | In millions $, except per share data | In millions $, except per share data | ||
Net sales | $xxx | $xxx | $xxx | FSP 33 |
Cost of sales | (xxx) | (xxx) | (xxx) | FSP 3.5 |
Gross profit | xxx | xxx | xxx | FSP 3.5 |
Other operating expenses | xxx | xxx | xxx | FSP 3.6 |
Selling, general, & administrative expenses | (xxx) | xxx | (xxx) | FSP 3.6 |
Provision for doubtful accounts and notes | (xxx) | (xxx) | (xxx) | FSP 3.6.2 |
Depreciation expense | (xxx) | (xxx) | (xxx) | FSP 3.6.3 |
Impairment loss | — | (xxx) | — | FSP 3.6.5 |
Restructuring expense | (xxx) | (xxx) | — | FSP 3.6.9 |
Other general expenses | (xxx) | (xxx) | (xxx) | FSP 3.6.13 |
Non-operating income | xxx | xxx | xxx | FSP 3.7 |
Interest and amortization of debt discount and expense | (xxx) | (xxx) | (xxx) | FSP 3.7.3/FSP 12 |
Non-operating expenses | (xxx) | (xxx) | (xxx) | FSP 3.7 |
Income (loss) from continuing operations before income tax expense | xxx | xxx | (xxx) | FSP 3.8.1 |
Income tax expense | (xxx) | (xxx) | (xxx) | FSP 3.8.2/ |
Equity in earnings of unconsolidated entities | xxx | xxx | (xxx) | FSP 3.8.3/ |
Income (loss) from continuing operations | xxx | xxx | (xxx) | FSP 3.8.4 |
Discontinued operations | — | xxx | — | FSP 3.8.5/ |
Income (loss) before cumulative effects of changes in accounting principles | xxx | xxx | (xxx) | FSP 3.8.6 |
Cumulative effects of changes in accounting principles | — | xxx | — | FSP 3.8.6/ |
Net income (loss) | xxx | xxx | (xxx) | FSP 3.8.7 |
Less: Net income (loss) attributable to noncontrolling interests | xxx | (xxx) | (xxx) | FSP 3.8.8/ |
Net income (loss) attributable to entity per common share—basic | FSP 3.8.9/ | |||
Continuing operations | xxx | xxx | xxx | FSP 3.8.9/ |
Discontinued operations | N/A | xxx | N/A | FSP 3.8.9/ |
Net income (loss) | xxx | xxx | xxx | FSP 3.8.9/ |
Net income (loss) attributable to entity per common share – diluted | FSP 3.8.9/ | |||
Continuing operations | xxx | xxx | xxx | FSP 3.8.9/ |
Discontinued operations | N/A | xxx | N/A | FSP 3.8.9/ |
Net income (loss) | xxx | xxx | xxx | FSP 3.8.9/ |
See Notes to the Consolidated Financial Statements.
