How the Income Statement Is Constructed

 In this chapter, we will learn how the income statement is constructed. In doing so, we will cover how to build the income statement to net income. This emphasizes that the account balance calculation, based on the trial balance, is the standardized step entities undertake prior to producing income statements. As it is standardized, across entities regardless of their nature – that is, it is the same for an organization refining oil and an organization selling advertising revenue – the account balance calculation forms the basis of a reusable solution. In this chapter, we will also learn about group accounting and how this results in the allocation of net income to controlling and non-controlling interests. Finally, we will cover the earnings per share (EPS) calculation which introduces non-journal entry information. Knowing how the income statement is constructed from an accounting perspective is essential to understanding the solution; to model the measurement of the accounting process, we must first understand the accounting process.