Income statement
Income Statement
The Income Statement (pronounced: /ˈɪnkʌm ˈsteɪtmənt/), also known as the Profit and Loss Statement or the Statement of Revenue and Expense, is one of the three main financial statements used by businesses, the others being the Balance Sheet and the Cash Flow Statement.
Etymology
The term "Income Statement" originates from the fact that it provides a detailed statement of a company's income. The term "Profit and Loss Statement" is derived from the fact that it shows the profit or loss of a company over a specific period.
Definition
The Income Statement provides a summary of a company's revenues, costs, and expenses, including taxes and interest, over a specific period. This period can be a quarter (three months) or a year. The bottom line of the income statement shows the company's net income, which is the result after all revenues and expenses have been accounted for.
Components
The Income Statement is composed of the following main components:
- Revenue: The total amount of money generated by the sale of goods or services. This is often referred to as the "top line" because it is usually the first line item on an income statement.
- Cost of Goods Sold (COGS): The direct costs attributable to the production of the goods sold by a company.
- Gross Profit: This is calculated as Revenue - COGS. It represents the profit a company makes after deducting the costs associated with making and selling its products, or providing its services.
- Operating Expenses: These include research and development (R&D), selling, general and administrative (SG&A) expenses, depreciation, and amortization.
- Operating Income: This is calculated as Gross Profit - Operating Expenses. It represents the profit a company makes from its core operations.
- Net Income: This is the bottom line of the income statement. It is calculated as Operating Income - Interest - Taxes. It represents the total earnings (or profit) of a company, taking into account all revenues, costs, and expenses.
Related Terms
- Balance Sheet
- Cash Flow Statement
- Financial Statement
- Gross Margin
- Operating Margin
- Net Profit Margin
External links
- Medical encyclopedia article on Income statement
- Wikipedia's article - Income statement
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