 The second important financial statements a business concern has is the income statement. This is the statement that shows operating results of a firm over the specific period of time. This income statement shows a list of incomes earned by a firm over the period and expenses incurred by a firm during that particular period. On the screen you can see an income statement. This income statement has an operating section, an administrative section, financial section and appropriation section. In this income statement, number of items have been listed in terms of operating revenue, cost of sales, operating expenses, other incomes, earning before interest and tax, interest expense, taxes and appropriation of income into dividend payment and retained earnings. Two important ratios can be derived from an income statement. The one is earnings per share, which can be computed by dividing earnings after tax over the outstanding number of shares. This ratio tells that how much earning a firm has made per share over a specific period of time. The second important ratio is dividend per share. This ratio tells that how much amount of dividend each shareholder has received from the company. These ratios are primary concern for the investor and the shareholders both. While analyzing an income statement, certain points can be considered. The first is gap, which is generally accepted accounting principles. Gaps tell that income and expenses should be counted on a cruel basis. This means that income should be accounted for when it is earned. This means that cash and credit both types of income should be recognized in the books of accounts. For expenses, the gap says that expenses should be recorded when they are incurred. This means that cash and credit expenses both would be recorded at the time of occurrence of the transaction. Now, important point is there that for a particular period of time, the income and expenses should be matched with each other. This means expenses should be transferred in the income statement for that period for which the income has been earned and transferred to the income statement. This means current period expenses should be matched with the current period income. This concept is called as matching principle. An income statement may carry certain non-cash items along with the cash items. A major example of non-cash item is depreciation expense, which is reported in the form of provision. So, provision for depreciation, provision for doubtful dates and deferred taxes are the example of non-cash items. Deferred taxes are the taxes that a firm has not to be paid or it would not be received until a particular transaction disappears from the balance sheet. For an economist, all the variables in the shorter period of time remain fixed like a firm cannot compromise on its commitments in a shorter period of time. An example is salaries, depreciation, investment in fixed assets and scale of business. But in the longer run, all these variables change over the period of time with the rising sales a firm has to expand its investment. But for accounting point of view, we differentiate short term period and long term period differently from the economics point of view. A shorter period is the time period in which current assets are converted into cash and current liabilities are paid by the firm. Longer period is the time period because beyond the period of 12 months in the shorter period, all costs are called as fixed but in the longer period, all fixed costs become variable and accounting does not create a difference between these two. Instead, financial accounting takes into account these costs into two terms in terms of product and period cost. Product costs are those costs that are charged to the production during a particular period of time. So we may say that the product cost means the production cost which is comprised of direct material cost, direct labor cost and manufacturing cost and all these production costs become the part of cost of goods sold which is appeared in the income statement in order to determine the amount of gross profit. Other costs are called as period costs. These are the costs that don't become part of the product cost rather these are charged to the period as period expense. Example is depreciation, salaries, rent, insurance or in broader sense we can say date administrative cost, marketing cost, interest cost are the period cost.