Facebook, Inc.: Step-by-step income statement

Summary

The video explains how to construct and read a basic income statement, using a simplified version of Facebook’s statement as an example.

Main Ideas

• Financial statements are prepared in this order:
  1. Income statement
  2. Statement of retained earnings
  3. Balance sheet
  4. Statement of cash flows
• The income statement shows how well a company performed over a period of time. It may also be called the statement of operations.
• It includes revenues, expenses, gains, and losses:
  • Revenues and gains increase net income.
  • Expenses and losses decrease net income.
• Assets, liabilities, and stockholders’ equity are reported on the balance sheet, not the income statement.

Basic Income Statement Construction

• Heading: Include the company’s official name, the statement name, and the period covered. An income statement reports results for a span of time, such as a year or quarter.
• Units: A note such as “In millions” means figures are presented without the corresponding six zeroes.
• Revenues: Begin with revenues or sales revenue.
• Expenses: List expenses and subtract them from revenues. Expenses are usually shown as positive figures because readers understand they are deducted.
• Operating income or loss: Calculate this after subtracting expenses from revenues. A loss is shown in parentheses.
• Other expenses and adjustments: Subtract these from operating income to reach net income or net loss.
• Net income or loss: If expenses and losses exceed revenues and gains overall, the result is a net loss, shown in parentheses.

Reporting Conventions

• A dollar sign appears on the first amount and on later subtotals and totals.
• A single underline marks a subtotal or total calculation.
• A double underline marks the final figure and indicates that the statement is complete.

The example shows that Facebook had positive net income for the year, meaning its operations were profitable during that period. The video notes that income can later be compared across years and with other companies in the same industry.

Knowledge-Check Lessons

• Income statement accounts include revenues, losses, expenses, and gains. Assets, liabilities, and stockholders’ equity belong on the balance sheet.
• Net income = Revenues − Expenses. With $75 in revenues and $50 in expenses, net income is $25.
• Dividends are not part of the net income calculation, even when beginning retained earnings and dividends are provided in a question.

Speakers and Sources Featured

• Presenter/narrator: The instructional speaker is not named in the subtitles; the video is from the Wendy Sell-Tietz channel.
• Example source: A simplified Facebook income statement, adapted for classroom use.