What is an income statement?

An income statement depicts a company’s profitability over a period of time. In other words, it summarizes revenues and expenses resulting from operating and non-operating activities. It also shows the company’s net profit or loss. It is one of the most important documents in a business’s financial reporting.

Alternative names for income statement

-Profit and loss statement

-Statement of revenue and expenses

Understanding Income Statement

The income statement is a crucial component of a company’s performance reports that must be filed with the Securities and Exchange Commission (SEC). The income statement reports income over a specific time period, whereas the balance sheet provides a snapshot of a company’s financials as of a specific date.

Key Terms that the income statement focuses on:

Operating revenue

Operating revenue is a term used to describe revenue generated by primary activities. 

The money earned from the sale of a product by a manufacturer, wholesaler, distributor, or retailer is referred to as revenue from main activities. Similarly, revenue from services refers to the fees a company in the service industry receives for providing particular services.

Non-operating revenue

Revenues realized through secondary, non-core business activities are often referred to as non-operating recurring revenues. These include income from interest earned on business capital lying in the bank, rental income from business property, strategic partnerships, or royalty payment receipts.

Gain

Gains, also known as other income, are the net proceeds from other operations such as the sale of long-term assets. Net income from one-time non-business operations, such as a company selling an outdated transportation van, abandoned land, or a subsidiary company, is included in this category.

Expenses

Also known as operating expenses. These expenses include rent, bank and ATM fees, equipment costs, marketing and advertising costs, merchant fees, and any other costs necessary to keep your business running.

Losses

All costs associated with a loss-making sale of long-term assets, one-time or other unusual costs, or expenses towards lawsuits.

Structure of the Income Statement

For the income statement, the net income is calculated as below:

Net Income = (Revenue + Gain) – (Expenses + Loss)

For example, assume that:

Total Revenue = USD 25,000

Total Expenses = USD 10,500 

Gains = USD 2,000

Losses = USD 800

Therefore, the Net Income will be:

Net Income = (Revenue + Gain) – (Expenses + Loss)

      = USD (25,000 + 2,000) – USD (10,500 +800)

      = USD 15,700

KLOUDAC Accounting Firm Dubai, UAE

KLOUDAC is a recognized accounting firm in Dubai, UAE with 15 years of service experience. We have built connections with over 500 customers. It has also won the certification of Xero Payroll and certification of Xero advisor from the world leading online accounting software – XERO. Moreover, KLOUDAC is a golden champion partner of Xero.  Accounting and Bookkeeping is more convenient for the SMEs via KLOUDAC since they provide their clients with a whole package of services such as Financial Consultancy, Business setup, Audit and assurance services, Taxation services, Recognized accounting software and more.

Add a Comment

Your email address will not be published. Required fields are marked *