# Income Statement

## What is an Income Statement?

An income statement represents the financial status of a company for a given period, which may be quarterly, monthly, annual, or any other specific time. It reflects the net profit and loss of organizations and their performance which can help in managing their market value. As such, it is also known as a profile and loss statement (P&L).

Points to Remember

These statements help businesses and other entities to monitor many factors of the company like tax expenses, employee expenses, and total comprehensive income.

## Income Statement Structure

An income statement can be a single-step or multi-step statement. In single-step, you can do the calculation with this simple formula: Net profit = (Revenue + Gain) – (Expenses + Loss). These statements are best suited and common for small enterprises.

On the other hand, large-scale businesses that rely on multiple operations or businesses use a multi-step income statement. For that, you can use the following structure.

## Income Statement Example

To understand the creation of an income statement, consider the following example:

## Key Terms of the Income Statement

Here are some important terms that you should know:

• Revenue: Earnings from all the sales or services
• Expenses: Money spent to run the business
• Cost of goods sold (COGS): Manufacturing cost of goods (labour, material, etc)
• Gross profit: Income after subtracting COGS from revenue
• Operating income: Income after deducting operating expenses from gross profit
• Non-operating income: Income from non-business operations, such as interest
• Earnings before income tax (EBIT): Total profit without any tax deductions
• Net income: Earning after deduction of taxes

## How do you create a statement of income?

Here is a step-by-step guide you can follow:

• Step 1: Decide the statement period
• Step 2: List all the revenue, returns, and discounts
• Step 3: Add the cost of goods sold
• Step 4: Calculate gross revenue
• Step 5: Subtract operating expenses to get operating income
• Step 6: Calculate other gains and losses
• Step 7: Deduct them from operating income for earnings before tax
• Step 8: Subtract taxes for income after tax

## Is the income statement and P&L the same?

Yes, as it is a statement of net income or loss for a specific period.