Income Statement is a report to measure the company’s financial performance during particular accounting period. This report reflects the company’s operating activities. According to Van Horne and Wachowicz (2005: 193), the income statement is a summary of the company’s revenues and expenses over a certain period, concluded by net profit or loss for that period.
The income statement primarily presents company’s performance information. It is required to assess potential changes in its economic resources in the future. It is useful to predict the company’s capacity to generate cash or profit from existing resources. In addition, this report is useful to measure the effectiveness of companies in utilizing additional resources.
Income statement usually consists of:
- cost of sales
- tax/other income
Those items are calculated to yield gross and net profit/loss that will describe how profitable their businesses is.
Depends on company’s type of business, some accounting experts suggest that the company should presents the details of expenses in the income statement or in the notes to the financial statements using classifications based on the nature or function of the burden within the enterprise.
In terms of profit, income statement usually consists of five parts of profit, those are:
Gross profit is a sales revenue after cost of sales during an accounting period.
Gross profit = Sales Revenue – Cost of Sales
Gross profit indicates directly how far the company is able to cover the cost of its products. To calculate gross profit is easy for trading or retail companies. They bought the products from their suppliers and then sell them by add some margins. Where those margins are basically gross profits.
Operating profit represents the difference between sales and all costs and operating expenses. Operating profit can be used to measure how far a company’s ability to generate revenue from its core business activities.
Profit before tax
Income before tax is the amount of profit before income tax as determined by the Financial Accounting Standards. This profit has no effect on the actual amount of income tax for the users of the financial statements in the case of decision making.
Net profit indicates the profitability of the company. Net income is the excess of net sales to cost of goods sold is deducted by operating expenses and income tax. Factors affecting the company’s net income are revenues, cost of goods sold, operating expenses, and income tax rate.
Profit from running operations
Represents the profit of the company’s ongoing business after interest and taxes. These earnings are also called earnings before extraordinary items and discontinuing operations.
Below is an income statement template for your reference. It is part of integrated accounting spreadsheet where the detail description can be read in its about worksheet. You might need other templates, like balance sheet and cash flow statement to complete your financial report.
Income Statement Template (192.5 KiB, 709 hits)