An income statement also referred to as the profit or loss statement, statement of financial performance or the statement of operations. Income statement is one of the three main financial statements of a company or business namely income statement, balance sheet and cash flow statement. As company works under the board of governors or investors the income statement is the record of company’s profit or loss under a period of time. Income statement is discussed briefly as follows.
An income statement of a business or a company projects the revenue collected from the sales and expenses that the company faced. Income statement is simple yet very important for the company as it brings the income and expenses in account. The two parts of the statement top line and the bottom line are explained as under. The top line shows the money received from the sales of the production or services to the public or client before expenses are taken out, while the bottom line is the sum obtained after the revenues and the expenses are accounted for i.e. the cost for the production, the write offs and the taxes are accounted for which gives the net profit. The defined top and bottom lines explain how the managers or business owners come to know the profitability or the loss of the firm.
An income statement is similar to the cash flow statement but it differs from the balance sheet in terms of the time frame. The balance sheet gives the details for a single instance or deal while the income statement gives the brief detail under a specific period of time. Income statements are generated quarterly and annually according to the fiscal year of the company.
And as for the charitable institutions they do not produce income statements instead they produce a similar statement that explains the income from the fund raisers and donations and other sources and their expenses. This statement is commonly known as the statement of activities.
Now, we discuss the details of writing the income statement. There are two commonly used approaches to produce an income statement. The single step income statement is simple to produce as it involves totaling the revenues (top line) and subtracting the expenses to find the bottom line for a specific period of time. The second approach is rather complex and known as the Multi Step income statement. As the name implies it involves multiple steps to produce the bottom line. First step is gross profits and then the operating expenses are calculated. These operating expenses are deducted from the gross profit yielding the income of operations which is further added up with other revenues. The sum is income before taxation and the final step is to deduct the taxes and the result is net income for specific period of time.
In a nutshell Income Statement is the cash monitoring statement that should help investors and stakeholders determine the past financial performance and condition of company, future performance and the ability to generate future cash inflows through report of income and expenses.
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