Definition
An income statement is also known as a profit and loss statement is a report made by company management that shows the revenue, expenses, and net income or loss for a period. the income statement is one of the main four financial statements that are issued by companies: income statement, balance sheet, statement of cash flows, and statement of owner’s equity.
What does an income statement mean?
An income statement is a statement that presents to show the income and expenses for a specified period. this could be monthly and annually, etc. a January income statement for example would show all the income and expenses for the net income or loss at the end of January. This kind of income statement is generated for a management procedure are normally shorter inframe. This type of monthly income statement helps management assess the company’s performance. periodically and annual income statements are additional regularly pre-owned by investors and creditors to traces the altogether performance of the company.
Income statements usually include a heading with the name of the company, the title of the statement, and the period.
Basics of the income statement
The income statement provides a basic summary of the company’s revenues and expenses within a specified period.
- The income statement starts with the revenue which a company makes by selling products to its customers. As long as revenue takes a sit at the peak of the income statement, that’s why it is also well known as the top line for the company.
- Other than the revenue income statement consist of all other items that sit at the bottom. That’s net income is known as the bottom line of a company. All the items are deducted from the revenue of the company. To arrive at the net income.
- The line items in between consist of the cost of goods sold to manufacture those goods. The cost includes the administration expenses also.
- Other items that are deducted to arrive at net income are interest expenses are taxes paid.
Income statement basic equation can be presented as:
Revenue – expenses = net profit
Basic components of the income statement
We have touched foundation of the primary elements of the income statement in the earlier sections. Let u now discuss each time in detail, which makes up the income statement of a company.
We can say the main and basic components of the income statement are revenue, cost of goods sold, gross profit, selling general and administrative expenses, earnings before interest tax and depreciation, depreciation expenses, operating profit, interest expenses taxes, and net profit.
Revenue
It is the first line item of the income statement, and revenue is calculated by the volume for the product times the selling price. If a company has said five segments that sum up to make the total revenue, the total revenues, then the total revenues for individual segments make up the total revenue. Revenue is also known as sales or turnover and is used interchangeably in different countries. Sales are a very crucial figure to look at a company, for a company to expand its important for it to increase its sales over time and in a way, capture market share.
Cost of goods sold
The cost of goods sold of the cost of the raw materials required to manufacture products. These types of raw materials are also drawn from different types of suppliers, and this cost includes the volume of costs essential for a company to run a business.
The cost of goods sold in Google primarily consists of traffic acquisition costs paid to Google network members for ads displayed.
Gross Profit-
It is the difference between the revenue of a company and the costs of goods sold for the company.
Selling general and administrative expenses-
This line item consists of all the costs required to manufacture the products and sell those products. These costs also take in the cost of factory expenditure to marketing expenses. These costs also include personnel costs which are paid to all the employees are it be factory works or administrative staff and others who get the salary from the company.
Depreciation expense-
Depreciation is the provision for a company to enable to buy back an asset when it is time for that asset to be scrapped. Depreciation is a non–cash expense for the company.
Operating profit –
It is arrived at by deducting the selling. General and administrative expenses and depreciation expenses from the gross profit. This line item is known as the operating profit because the company generates this amount from its operations.
Interest expenses-
these are the interest paid by the company in a particular period for the total debt of the company. It includes interest from the short-term debt and long-term debt.
Net profit-
net profit is arrived at by deducting interest expenses and taxes of a company.
Conclusion
in conclusion, after a deep study on the topic of what income statement? It mainly covers all the objects which I have set ( complete information about what is the income statement, the proper definition of an income statement, what does income statement mean, the basics of the income statement, and the basic components of the income statement.) I have observed that in simple words I must say that an income statement is a presentation of a basic summary of the company’s income and expenses. The most important thing is to understand each line item to clear out the prospects of a company. Here I have learned many things about income statements which provides me a lot of knowledge and the process of a proper income statement and for what prospectus it is made. Simply, I can say that an income statement is a statement that shows the income and expenses for a specific period. I believe that it is very much important to understand each line item to clear out the prospects of a company and the items are like net profit, sales, etc.
You may refer to this video if you want the explanation in Hindi
