Income statement Definition & Meaning

income statement definition

The income statement presents the financial results of a business for a stated period of time. The statement quantifies the amount of revenue generated and expenses incurred by an organization during a reporting period, as well as any resulting net profit or loss. The income statement is an essential income statement part of the financial statements that an organization releases. The other parts of the financial statements are the balance sheet and statement of cash flows. But if you’re looking for a super simple financial report to calculate your company’s financial performance, single-step is the way to go.

income statement definition

An analyst should identify differences in companies’ expense recognition methods and adjust reported financial statements where possible to facilitate comparability. Investment analysts intensely scrutinize companies’ income statements. Corporate financial announcements frequently emphasize information reported in income statements, particularly earnings, more than information reported in the other financial statements. The income statement details the firm’s revenue and expenses during a period of time. Also known as a ‘profit and loss statement’, it highlights how much the firm has sold and how much it has spent. This is broken up into ‘cost of sales’ which shows how much the firm has spent to produce the goods it has sold. There are then ‘operating expenses’ which cover expenses such as rent, utilities, and insurance.

Single-Step Income Statement

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In some cases, we receive a commission from our partners, however, our opinions are our own. Interest expenses are tied to the cost of financing, such as payments for interest on loans and bonds.

Multi-Step Income Statement

Non-operating revenue comes from ancillary sources such as interest income from capital held in a bank or income from rental of business property. These are all expenses linked to noncore business activities, like interest paid on loan money.

What are the 3 parts of an income statement?

The three parts of the income statement are revenue, expenses, and profit. Otherwise known as ‘net sales’, revenue reflects how much a company brings in. Expenses are generally broken down into ‘cost of sales’, which are generally the raw materials, and ‘operating expenses’, which are all other costs such as rent, labor, utilities, and machinery.

For example, manufacturers will pay for the raw materials and labor costs to make its goods. For those service businesses such as hairdressing, this will just cover the hairdressers salary. Any equipment such as hair-clippers will go under a separate expense – depreciation. Whilst the balance sheet looks at a firms financial stability, the income statement looks at the firms profitability.