Final answer:
Irregular transactions, such as discontinued operations and extraordinary items, should be separately reported in the income statement. This allows for better analysis by clearly showing the impact of these irregular items on the company's financial results. The balance sheet, statement of cash flows, and notes to the financial statements serve different purposes and would not typically include these irregular transaction items in the same detailed manner.
Step-by-step explanation:
Irregular transactions such as discontinued operations and extraordinary items should be reported separately in the income statement. The income statement captures a company's financial performance over a specific period, detailing revenue, expenses, gains, and losses. These irregular items must be distinctly shown to ensure that users of financial statements understand their nature and impact on the company's financial results. Discontinued operations refer to the parts of a business that have been sold or eliminated through other means and will no longer contribute to the company's future cash flows. Extraordinary items are events and transactions that are distinct from the ordinary activities of the company and are both unusual and infrequent. Although the specific presentation can vary due to accounting standards and regulations, these items are typically segregated within the income statement to allow for better analysis of ongoing operations.
The balance sheet captures a snapshot of the company's financial position at a specific point in time, including assets, liabilities, and equity, and would not typically include these transaction items. The statement of cash flows records the actual cash inflows and outflows from operating, investing, and financing activities. While some effects of these irregular transactions might be reflected in cash flows, the statement itself does not separate these transactions as they are presented in the income statement. Finally, the notes to the financial statements provide additional information and disclosures about the items presented in the main financial statements. Detailed explanations of irregular items are often included here, offering context and clarity beyond the figures presented in the income statement.