Income Statement

Hi Everyone,

Today we are going to talk about income statement. Let’s first agree on the definition of income statement

“The income statement reports the revenues, gains, expenses, losses, net income and other totals for the period of time shown in the heading of the statement.”

Sample Format:

Alternate Terms

The alternate terms for income statements are 

• profit and loss account 
• profit and loss statement (P&L) 
• revenue statement 
• statement of financial performance 
• earnings statement 
• operating statement 
• statement of operations

Why an Income Statement is used?

Now that we are agreed on the definition, have seen the basic format of the income statement, we can now talk about why to use an income statement.

• It indicates how the revenues (money received from the sale of products and services before expenses are taken out, also known as the “top line”) are transformed into the net income (the result after all revenues and expenses have been accounted for, also known as “net profit” or the “bottom line”).

• It displays the revenues recognized for a specific period, and the cost and expenses charged against these revenues, including write-offs (e.g., depreciation and amortization of various assets) and taxes.

• Income Statement also provides the basis for measuring performance of an entity over the course of an accounting period.

• Performance can be assessed from the income statement in terms of the following:

•  Change in sales revenue over the period and in comparison to industry growth
• Change in gross profit margin, operating profit margin and net profit margin over the period
• Increase or decrease in net profit, operating profit and gross profit over the period
• Comparison of the entity's profitability with other organizations operating in similar industries or sectors

Components of Income Statement

Basically an income statement is based on 2 equations

Gross Profit = Sales – Cost of Goods Sold

Net Profit = Gross Profit – Expenses

As we had it in our balance sheet

Revenue

less        Cost of Goods Sold

                Gross Profit

less        Expenses

                Net Profit

So we can conclude that the basic components of a balance sheet are

• Revenue (Gross receipts earned by the company selling its goods or services)

• Cost of Goods Sold (Cost of goods sold is the direct cost of producing the goods being offered by the entity. This would include the materials, labor, and other resources required for production)

• Gross Profit (Gross profit is the difference between the revenue received for the product less the cost of goods sold)

• Expenses (The costs to the company to earn the gross receipts)

• Net Profit (Revenues minus all expenses equal net income (profits or losses). Profits are also referred to as net income or the “bottom line” because profits are reported at the bottom of the income statement. Some analysts call these “accounting profits” because they include non-cash accounting entries such as depreciation and amortization)

So, this was all for today, Stay good :)

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And in the end there is a message to me that I am not accepting so far

I’m sorry for all misdeeds
This is wrong because it has affected rather ruined you badly
In the future, I will be careful not doing like thi
Will you forgive please me? :(