Income Statement

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

Related Terms

earnings statement, balance sheet, net income, financial statements, cash flow statement, unusual gains or losses, quality of earnings, extraordinary items