Explain about income statement in accounting.

Finance ManagementAccountingAcademic Content

Income statement tells about firm’s revenues, expenses and profit/ loss in a period or an accounting year. In other words, it tells about firm’s probability in a particular period, it may be quarterly or annually. It is also called as profit and loss statement, revenue statement, statement of financial performance, earning statement, operating statement. The main purpose is to provide financial earnings of a firm for a specific period of time.

Types of income statements −

  • Single step income statement − Only one step is involved in this statement. That is, total revenue is subtracted from expenses.

  • Multiple step − Several steps are involved in this statement. Calculation of gross profit, then calculating operating expenses and then deducting from gross profits.

Components of income statements include −

  • Revenue − Money generated from sales of goods/services.
  • Cost of goods sold − Total amount for producing the goods, which includes material, labour and other necessary components.
  • Gross profit − Divergence between revenue and cost of goods sold.
  • Operating expenses − Amount spend to maintain and operate the business, which includes R&D, marketing, administrative expenses, amortisation etc.
  • Operating income − Revenue minus goods sold and operating expenses.
  • Other income/expenses − Income tax expenses, interest income etc.
  • Profits − Revenue minus all expenses.

Formula

  • Gross profit = R – CGS
  • Operating income = G – OP
  • Net income = OI + NOI

                      = (R + NOI) – (CGS + OP)

Here R = revenue, CGS = Cost of goods sold, G = Gross profit, OP= operating expenses, OI = operating income, NOI = Non – Operating items, OI = Operating income

General format of income statement is as follows −


Debit (currency)Credit (Currency)
Income statement of a ABC For year end Dec 31st XXX
Revenues (A)

Gross revenues
XXXX
Expense (B)

AdvertisingXXX
InsuranceXXX
RentXXX
Other expnesesXXX
Total (A-B)
XXXX
raja
Published on 13-Aug-2020 14:06:59
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