Income Statement

Introduction

The Income Statement summarizes the results of operations of an entity for a period of time. At a minimum, all companies prepare income statements at least once a year. Monthly income statements are usually prepared for internal use by management. Income statement is also sometimes called profit and loss account. It help people to see the financial performance of the company. It is also used for comprising the financial performance with past performance, benchmark, and competitors.

Components of Income Statement

There are the major components of income statement listed as bellows:

1. Sales Revenue: It includes both cash and non-cash sales by deducting sales return and discount. It can be calculated by multiplying price of the product with quantity sold.
   

2. Cost of Goods Sold: It refers to direct cost of producing the goods sold by the company. It can be calculated by adding purchase of inventory and direct expenses  and subtracting ending inventory from opening inventory.
   

3. Gross Profit: It is profit of the company before adjusting the operating expenses. It can be calculated by subtracting cost of goods sold from sales revenue.
   

4. Operating Expenses: It includes all the indirect expenses include office & administrative expenses and selling & distribution expenses.
   

5. Depreciation and Amortization Expenses: Depreciation and amortization are kinds of non-cash expenses that comes from fixed assets and preliminary expenses or bad debts.
   

6. Interest Expenses: It is one of the indirect expenses that is charged certain fixed percentage of loan amount and paid monthly or annually.
   

7. Tax Expenses: It is obligation of the company that must be paid to the government based on slab published by statutory body in case of profit.
   

8. Net Profit: It is an actual profit of the company that to be distributed to its shareholders. It can be calculated by subtracting tax expenses from net income before tax.
   

Why the Income Statement is prepared?

Basically, the following points that explained the reasons for above questions are listed as follows:

• To find the gross profit

• To find income from operations

• To find income before interest and taxes

• To find the Net Profit after tax or actual firm's profit 

Format of the Income Statement with Example

Basically, there are two types of the Income Statement Format listed as follows:

1. Single-Step Income Statement 

   
   

2. Multiple-Step Income Statement

   Multi-step income statement can be presented by two ways:

   • By showing Depreciation, Amortization and Interest expenses
     

    

   • By hiding Depreciation, Amortization and Interest expenses

   

Conclusion

The Income Statement summarizes the results of operations of an entity for a period of time. At a minimum, all companies prepare income statements at least once a year. Basically, there are two types of the Income Statement Format include Single-Step and Multi-Step Income Statement. Under multi-step income statement, there are two ways to present one as by showing Depreciation, Amortization and Interest Expenses while anther is by hiding Depreciation, Amortization and Interest Expenses.

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