An income statement is among the major financial statements that companies use to report the financial status and types of financial assets of their businesses. These statements are the balance sheet, the income statement, the statement of owner's equity, examples of stockholders' equity and the statement of cash flows.
The balance sheet displays a picture of the company's financial status and types of financial assets on any given day, which is typically December 31. The income statement, however, reveals the amount of earned revenue a company generated during a designated time period. This time period is most often a year. Common stock is included on the income statement as well as the balance sheet.
Value of Income Statement to Investors
The income statement of a business includes the expenditures and general costs related to the company's revenues. On the last line of the statement, the total amount earned or lost by the company over a given time period is given. An income statement's equation reads as: Net Income = Revenue - Expenses + Gains - Losses.
Investors have an interest in the income statement since it reveals a company's operational activities and performance and its types of financial assets for the year. This statement also acts as a guide in projecting the well-being of this company or corporation in the future and the expectations for its shares as examples of stockholders' equity.
Read More: Why Are Income Statements Important?
EPS of Common Stock
A company's income statement also includes the earnings per share of stock (EPS) and the types of stocks and bonds in its holdings. The figure given for the earnings per share reveals the monetary earnings of one share of common stock. The two varieties of earnings per share are basic earnings per share and diluted earnings per share.
The diluted earnings per share include the influence of stock options, grants and convertible bonds. If a corporation has both of these earnings types, they both must be included in the income statement.
Function of the EPS Calculation
The EPS calculation reveals the amount of money that would be issued to shareholders if the company should decide to distribute the entirety of its net earnings for the period. To compute EPS, the total net income must be divided by the number of the company's outstanding shares.
Common Stock's Reported Two Times
For the consolidated balance sheet, common stock appears twice under the "Shareholders Equity" column. If preferred stock was issued by the corporation, this is listed first. Common stock is reported next on the consolidated income statement. It appears as net income and is listed in this format:
"Common Shares Outstanding XX,XXX,XXX Earnings per common share before extraordinary loss $X.XX"
Common Stock Account Data Recording
Serving as a general ledger account, the common stock account reports the par value of all of the common stock that is issued by a corporation. If these shares sell for an amount greater than their par value, the excess amount is reported separately in an additional paid-in capital account. These shares are examples of profitable stockholders' equity. For shares without a par value, the entire sale price is included in the common stock account.
Classified as an equity account, it is listed near the end of the balance sheet of a reporting entity.
Read More: Common Stock Vs. Preferred Stock Vs. Bonds
Common Stock: Liability or Asset?
Assets are holdings that may increase the value of a company over a length of time. Liabilities are debts to be paid or product and service obligations that must be met. Since a stock share price can increase and indicate rising value for a company, it is easy to understand why certain types of stocks and bonds might be viewed as assets.
Yet it is also easy to comprehend why some types of stocks and bonds might be viewed as liabilities. This is because companies may assume debt to buy back their own company stock to allocate stock for worker's compensation or acquisition transactions. However, common stock is not an asset, nor is it a liability.
Common stock is actually equity. These stock shares are examples of stockholders' equity as well as company equity.
Read More: Difference Between Debt & Liabilities
Adam Luehrs is a writer during the day and a voracious reader at night. He focuses mostly on finance writing and has a passion for real estate, credit card deals, and investing.