Definition
The income statement is a financial accounting report that demonstrates how net income, or profit, is derived from revenues. The main categories appearing on an income statement include revenues, cost of goods sold, operating expenses, non-recurring items and net income.
Explanation
The income statement is one of the three key financial statements issued by a company; the others being the balance sheet and the statement of cash flows. The income statement is arguably the single most important of these statements, since it provides investors, analysts, and creditors with a measure of the company's profitability.
Alternative titles for the income statement include:
Earnings Statement
Statement of Profit and Loss (P&L)
Statement of Operations
The categories of information appearing on the income statement include:
Revenues: money flowing into the company as a result of the sales of the company's products or services
Cost of Goods Sold: the direct expenses associated with making a product or supplying a service such as direct labor and raw materials
Operating Expenses: research and development, selling general and administrative expenses
Other Expenses: depreciation, amortization, income taxes and interest expense
Non-Recurring Items: income and expenses from discontinued operations, extraordinary items, effects of accounting changes
Example
The table below provides a high level summary of the components of the income statement (continuing operations).
Total Revenue | 29,611,000 |
Cost of Goods Sold | (15,693,000) |
Gross Profit | 13,918,000 |
Operating Expenses | |
Selling General and Administrative | (7,740,000) |
Operating Income or Loss | 6,178,000 |
Income from Continuing Operations | |
Interest Expense | (221,000) |
Income Tax Expense | (1,674,000) |
Net Income from Continuing Operations | 4,283,000 |
Related Terms
Also known as the income statement, the earnings statement is a standard financial accounting document that outlines the revenues and expenses in a given reporting period. Performance is generally measured in terms of net profit or loss.
Moneyzine EditorJanuary 16th, 2024
Also known as a statement of financial position, the balance sheet is used to show the financial health of a company at a particular point in time. The balance sheet consists of assets, liabilities, and owner's equity in the company. It is one of the four key financial statements issued by public companies.Moneyzine EditorJanuary 8th, 2024- The financial accounting term net Income is used to describe a measure of a company's profitability. Net income is a line item appearing on the income statement, and is derived by subtracting expenses from revenues.Moneyzine EditorSeptember 20th, 2023
The accounting term financial statement refers to a series of documents that reflect the collection and summary of accounting data. Financial statements include the balance sheet, income statement, cash flow statement, and the statement of retained earnings.Moneyzine EditorJanuary 18th, 2024
The cash flow statement is a financial accounting report that demonstrates how cash flows both into and out of a company. Cash flow statements provide investors and analysts with insights into the change in cash and cash equivalents in a given accounting period.Moneyzine EditorJanuary 10th, 2024- The financial accounting term unusual gains or losses refers to line items appearing on a company's income statement that are unusual or occur infrequently. These are costs or revenues that would materially affect the company's financial statement, and are considered part of the company's normal business operation.Moneyzine EditorSeptember 21st, 2023
- The term quality of earnings refers to the degree to which earnings reported on the company's income statement are a direct result of sustainable and ongoing business operations. Factors lowering the quality of earnings include inflation and other economic conditions, one-time events, and liberal accounting practices.Moneyzine EditorSeptember 21st, 2023
The financial accounting term extraordinary items refers to gains or losses appearing on a company's income statement that are both unusual and occur infrequently. These are items that can materially affect the company's financial statements, but are not considered part of the company's normal business operations.Moneyzine EditorJanuary 17th, 2024
