Which component is NOT part of the income statement equation?

The income statement equation focuses on the revenues and expenses of a business, ultimately leading to the calculation of net income. The primary components of an income statement include net sales, gross margin, and net income, all of which relate directly to the financial performance of the company over a specific period.

Net sales represent the total revenue from sales after subtracting returns, allowances, and discounts. Gross margin, which is derived from net sales minus the cost of goods sold, indicates how efficiently a company produces and sells its products. Net income reflects the profit after all expenses, including operating expenses, taxes, and interest, have been deducted from total revenues.

Current assets, on the other hand, are listed on the balance sheet and represent resources expected to be converted into cash or consumed within a year. Since the balance sheet and income statement serve different purposes in financial reporting—one focusing on a company's financial position at a specific point in time and the other looking at its performance over a period—the inclusion of current assets would not fit the equation of the income statement. Therefore, it is correct to identify current assets as the component that does not belong in the income statement equation.