Being a business man or an employee in a business organization, you need to have an understanding of all the financial statements. Income statement is that financial statement which provides accounting information related to a business to the company’s shareholders, government and other entities involved. A figure in terms of profit or loss is shown at the end of the statement. Income statement is also known as “Profit and Loss statement”. Like all other statements, it can also be produced monthly, quarter and annually. It tells the financial status of a business in a specific accounting period and shows the progress of the business.
Large companies even prepare weekly income statements for analyzing the performance of the business. Small companies on the other hand can prepare them on monthly basis or annually basis too. It all depends on the company that how and when will be financial statements be generated. There is no hard and fast rule for the frequency of report development.
Parts of an income statement:
An income statement is comprises of the following parts:
- Revenue: It is the gross amount that has been obtained after selling of goods or services. By gross it means that no expenses from the sales prices are deducted.
- Cost of goods sold: These include the cost of goods or services sold to the customers during a specific period of time.
- Gross profit: It is the difference between total sales and revenue
- Operating expense: These are expenses incurred by the company for running the business. They include marketing expenses and administrative expenses.
- Operating profit: It is the difference between gross profit and operating expenses
- Interest expenses: The financial cost a business incurred is mostly included in the interest expenses.
- Net profit/ net loss: It is the figure that tells whether the company is at profit or loss. If the figure is positive then it means the company has incurred profit. If the figure is negative then this means that the company is at loss.
Companies also compare the income statement of the current year with that of the previous year in order to monitor the performance of the business. If the company is going at loss, then the management will have to devise such strategies through which it could go back to the track of earning profit. If the company is at loss, then investors will not be willing to invest in your company.