Which accounts are found on an income statement? (Select all that apply)

An income statement is one of the three important financial statements used for reporting a company’s financial performance over a specific accounting period. The other two key statements are the balance sheet and the cash flow statement.

The income statement focuses on the revenue, expenses, gains, and losses of a company during a particular period. Also known as the profit and loss (P&L) statement or the statement of revenue and expense, an income statement provides valuable insights into a company’s operations, the efficiency of its management, underperforming sectors, and its performance relative to industry peers.

Key Takeaways

• An income statement is one of the three major financial statements, along with the balance sheet and the cash flow statement, that report a company’s financial performance over a specific accounting period.
• The income statement focuses on the revenue, expenses, gains, and losses of a company during a particular period.
• An income statement provides valuable insights into various aspects of a business. It includes readings on a company’s operations, the efficiency of its management, the possible leaky areas that may be eroding profits, and whether the company is performing in line with industry peers.

  Income statement accounts are those accounts in the general ledger that are used in a firm’s profit and loss statement. These accounts are usually positioned in the general ledger after the accounts used to compile the balance sheet. A larger organization may have hundreds or even thousands of income statement accounts, in order to track the revenues and expenses associated with its various product lines, departments, and divisions. The income statement accounts most commonly used are as follows:

  • Revenue. Contains revenue from the sale of products and services. Could be segregated into additional accounts to record sales for particular products, regions, or other classifications.

  • Sales discounts. This is a contra account, containing discounts granted to customers from the gross sale price.

  • Cost of goods sold. Contains the cost of manufactured goods or merchandise sold during the period. Could be segregated into additional accounts to record the costs of direct materials, direct labor, and factory overhead.

  • Compensation expense. Contains the costs of salaries and wages incurred during the reporting period for all employees. This includes bonuses, commissions, and severance pay.

  • Depreciation and amortization expense. Contains the periodic depreciation and amortization charges associated with tangible and intangible fixed assets.

  • Employee benefits. Contains the employer-paid portions of the costs of numerous benefits, such as medical insurance, life insurance, and pension plan contributions.

  • Insurance expense. Includes the recognized cost of insurance, such as for building insurance or general liability insurance.

  • Marketing expenses. Contains the costs of a variety of expenses, including advertising, publications, and brochures.

  • Office supplies expense. Contains the costs of all incidental supplies incurred by the business that are not related to production activities.

  • Payroll taxes. Contains the employer-paid portions of payroll taxes, such as social security.

  • Professional fees. Contains the costs of auditors, attorneys, and consultants.

  • Rent expense. Contains the cost of lease payments on facilities and land being leased by the entity.

  • Repair and maintenance expense. Contains the costs of all repair and maintenance activities incurred by the business that are not related to production activities.

  • Taxes. Contains property taxes, use taxes, and other taxes charged by local governments.

  • Travel and entertainment expense. Contains the costs of all airfare, mileage reimbursement, hotels, and related expenses incurred by employees.

  • Utilities expense. Contains the costs of telephones, electricity, gas, and so forth.

  • Income taxes. If the entity is subject to income taxes, the amount is recorded in this account.

  An organization located in a unique industry may find that it requires additional accounts beyond the ones noted here. Alternatively, they may find that certain accounts are of no use. Thus, the exact set of income statement accounts used will vary by company.

  Setting Every Community Up for Retirement Enhancement (SECURE) Act (2019) made some important changes to 529 plans. 

  • It allows 529 plan distributions of up to $10,000 to repay qualified student loans of the beneficiary. An additional $10,000 can be used for the qualified student loans of each of the beneficiary’s siblings. The $10,000 cap is a lifetime – not annual – limit.
  • It allows 529 plan distributions to pay for registered apprenticeship programs.

  The SEC’s Office of Investor Education and Advocacy is issuing this Investor Bulletin to provide investors with background information on 529 plans. Please also see our companion Bulletin for a few questions to consider before opening a 529 plan account. 

  What is a 529 plan?

  A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code. 

  There are two types of 529 plans: prepaid tuition plans and education savings plans. All fifty states and the District of Columbia sponsor at least one type of 529 plan. In addition, a group of private colleges and universities sponsor a prepaid tuition plan. 

  What are the differences between prepaid tuition plans and education savings plans? 

  Prepaid Tuition Plans. Prepaid tuition plans let a saver or account holder purchase units or credits at participating colleges and universities (usually public and in-state) for future tuition and mandatory fees at current prices for the beneficiary. Prepaid tuition plans usually cannot be used to pay for future room and board at colleges and universities and do not allow you to prepay for tuition for elementary and secondary schools.

  Most prepaid tuition plans are sponsored by state governments and have residency requirements for the saver and/or beneficiary. Prepaid plans are not guaranteed by the federal government. Some state governments guarantee the money paid into the prepaid tuition plans that they sponsor, but some do not. If your prepaid tuition payments aren’t guaranteed, you may lose some or all of your money in the plan if the plan’s sponsor has a financial shortfall. In addition, if a beneficiary doesn’t attend a participating college or university, the prepaid tuition plan may pay less than if the beneficiary attended a participating college or university. It may only pay a small return on the original investment.

  Education Savings Plans. Education savings plans let a saver open an investment account to save for the beneficiary’s future qualified higher education expenses – tuition, mandatory fees and room and board. Withdrawals from education savings plan accounts can generally be used at any college or university, including sometimes at non-U.S. colleges and universities. Education savings plans can also be used to pay up to $10,000 per year per beneficiary for tuition at any public, private or religious elementary or secondary school.  

  A saver may typically choose among a range of investment portfolio options, which often include various mutual fund and exchange-traded fund (ETF) portfolios and a principal-protected bank product. These portfolios also may include static fund portfolios and age-based portfolios (sometimes called target-date portfolios). Typically age-based portfolios automatically shift toward more conservative investments as the beneficiary gets closer to college age. If you are using a 529 account to pay for elementary or secondary school tuition, you may have a shorter time horizon for your money to grow. You also may not feel comfortable taking on riskier or more volatile investments if you plan on withdrawing the money soon. Because of these things, you may consider different investment options depending on when you plan to use the money that is invested.

  All education savings plans are sponsored by state governments, but only a few have residency requirements for the saver and/or beneficiary. State governments do not guarantee investments in education savings plans. Education savings plan investments in mutual funds and ETFs are not federally guaranteed, but investments in some principal-protected bank products may be insured by the FDIC. As with most investments, investments in education savings plans may not make any money and could lose some or all of the money invested.

  What fees and expenses will I pay if I invest in a 529 plan? 

  It is important to understand the fees and expenses associated with 529 plans because they lower your returns. Fees and expenses will vary based on the type of 529 plan (education savings plan or prepaid tuition plan), whether it is a broker- or direct-sold plan, the plan itself and the underlying investments. You should carefully review the plan’s offering circular to understand what fees are charged for the plan and each investment option.

  Prepaid Tuition Plans. Prepaid tuition plans may charge an enrollment/application fee and ongoing administrative fees.  

  Education Savings Plans. Education savings plans may charge an enrollment/application fee, annual account maintenance fees, ongoing program management fees, and ongoing asset management fees. Some of these fees are collected by the state sponsor of the plan and some are collected by the plan manager. The asset management fees will depend on the investment option you select. Investors that purchase an education savings plan from a broker are typically subject to additional fees, such as sales loads or charges at the time of investment or redemption and ongoing distribution fees.

  Fee Saving Tips. Many states offer direct-sold education savings plans in which savers can invest without paying additional broker-charged fees. In addition, some education savings plans will waive or reduce the administrative or maintenance fees if you maintain a large account balance, participate in an automatic contribution plan, or are a resident of the state sponsoring the 529 plan. Some 529 plans also offer fee waivers if the saver accepts electronic-only delivery of documents or enrolls online.

  How does investing in a 529 plan affect federal and state income taxes? 

  Investing in a 529 plan may offer savers special tax benefits. These benefits vary depending on the state and the 529 plan. In addition, state and federal laws that affect 529 plans could change. You should make sure you understand the tax implications of investing in a 529 plan and consider whether to consult a tax adviser.

  Contributions. Many states offer tax benefits for contributions to a 529 plan. These benefits may include deducting contributions from state income tax or matching grants but may have various restrictions or requirements. In addition, savers may only be eligible for these benefits if you invest in a 529 plan sponsored by your state of residence.

  Withdrawals. If you use 529 account withdrawals for qualified higher education expenses or tuition for elementary or secondary schools, earnings in the 529 account are not subject to federal income tax and, in many cases, state income tax. However, if 529 account withdrawals are not used for qualified higher education expenses or tuition for elementary or secondary schools, they will be subject to state and federal income taxes and an additional 10% federal tax penalty on earnings.

  One of the benefits of 529 plans is the tax-free earnings that grow over a period of time. The longer your money is invested, the more time it has to grow and the greater your tax benefits. You will lose some of these potential benefits if you withdraw money from a 529 plan account within a short period of time after it is contributed.

  What restrictions apply to an investment in a 529 plan?

  There will likely be restrictions on any 529 plan you may be considering. Before you invest in a 529 plan, you should read the plan’s offering circular to make sure that you understand and are comfortable with any plan restrictions.

  Investments. Education savings plans have certain pre-set investment options. It is not permitted to switch freely among the options. Under current tax law, an account holder is only permitted to change his or her investment option twice per year or when there is a change in the beneficiary.

  Withdrawals. With limited exceptions, you can only withdraw money that you invest in an education savings plan for qualified higher education expenses or tuition for elementary or secondary schools without incurring taxes and penalties. Beneficiaries of prepaid tuition plans may only use their purchased credits or units at participating colleges or universities.  If a beneficiary doesn’t attend a participating college or university, the prepaid tuition plan may pay less than if the beneficiary attended a participating college or university. It may only pay a small return on the original investment.

  Does investing in a 529 plan impact financial aid eligibility?

  While each educational institution may treat assets held in a 529 account differently, investing in a 529 plan will generally impact a student’s eligibility to receive need-based financial aid for college. You may also need to consider how having money in your 529 account for future qualified higher education expenses might affect financial aid for your student’s elementary or secondary school tuition. For many families, the larger part of a financial aid package may be in loans. So, the more you can save for school, the less debt you or your student may have to incur.

  Where can I find more information? 

  Offering Circulars for 529 Plans. You can find out more about a particular 529 plan by reading its offering circular. The National Association of State Treasurers created the College Savings Plan Network (link is external), which provides links to most 529 plan websites. 

  529 Expense Analyzer. 529 education savings plans have fees and expenses that can vary widely from plan to plan.  The Financial Industry Regulatory Authority (FINRA) has developed a tool to help you compare how these fees and expenses can reduce returns.

  Underlying Mutual Funds or Exchange-Traded Funds. Additional information about a mutual fund or ETF that is an investment option in an education savings plan is available in its prospectus, statement of additional information, and semiannual and annual shareholder reports. You can obtain these documents from the plan manager for no charge. You can also review these documents on the SEC’s EDGAR database. 

  Fees and Expenses. You can read about the impact fees and expenses have on your investment portfolios in the SEC’s Office of Investor Education and Advocacy’s Investor Bulletin:  How Fees and Expenses Affect Your Investment Portfolio.

  Brokers or Investment Advisers. Many education savings plans’ program managers are registered investment advisers. You can search for an investment adviser and view its Form ADV on Investor.gov. You can also search for any disciplinary sanctions against a broker who may sell a 529 savings plan product, as well as information about his or her professional background and registration and licensing status, on Investor.gov. 

  Financial Aid.  You can read more about federal financial aid at the U.S. Department of Education’s Federal Student Aid website. 

  Other Online Resources. You can learn more about 529 plans and other education saving options on FINRA’s Saving for College website (link is external). The website contains links to other sites, including the College Savings Plan Network (link is external) and the Internal Revenue Service’s Publication 970 (Tax Benefits for Higher Education). You can also find educational information about 529 plans on the Municipal Securities Rulemaking Board’s

  What accounts are found on the income statement?

  What are Income Statement Accounts?.

  Revenue. Contains revenue from the sale of products and services. ... .

  Sales discounts. ... .

  Cost of goods sold. ... .

  Compensation expense. ... .

  Depreciation and amortization expense. ... .

  Employee benefits. ... .

  Insurance expense. ... .

  Marketing expenses..

  Which accounts are found on an income statement quizlet?

  The income statement summarizes the financial impact of operating activities undertaken by the company during the accounting period. It includes three main sections: revenues, expenses, and net income.

  Which accounts are found on an income statement indeed?

  Two key areas make up an income statement—revenue and gains and expenses and losses:.

  Revenue and gains. Revenue is money earned from the sale of goods or services provided. ... .

  Expenses and losses. Expenses include all funds used to pay for different aspects of doing business..