Income Statement

### Section: Income Statement Analysis Estimated study time: 45 minutes Content: Exam weight (2026 curriculum): Financial Statement Analysis — 11–14% of the CFA Level I exam (one of three topics tied at the second-highest weight, alongside Equity Investments and Fixed Income). Source: CFA Institute Level I Exam page, fetched 2026-06-29. The FSA topic area is the largest single content area by study material volume and is a prerequisite for FSA topics tested at Level II (10–15%). The income statement (also called the profit and loss statement or statement of operations) reports a company's revenues, expenses, and profits over a defined period — typically a quarter or fiscal year. Under accrual accounting, revenues are recognized when earned (not necessarily when cash is received) and expenses are matched to the period in which they help generate revenue (matching principle). This contrasts with cash-basis accounting, where transactions are recorded only when cash changes hands. The accrual method provides a more accurate picture of economic activity in a given period but introduces management discretion (and potential manipulation) through estimates, deferrals, and accruals. CFA candidates must be able to identify the components of the income statement, understand GAAP vs. IFRS differences, and detect signs of earnings quality problems. The basic structure of the income statement flows from revenue to net income: Revenue (Net Sales) → minus Cost of Goods Sold (COGS) → Gross Profit → minus Operating Expenses (SG&A, D&A, R&D) → Operating Income (EBIT) → minus/plus Non-Operating Items (interest expense, interest income, gains/losses) → Pre-tax Income (EBT) → minus Income Tax Expense → Net…