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 |
