Income

Statement

What is Income
Statement ?

The financial performance of the

company over a period of time (the
accounting period)

Changes in Revenue accounts and

Expense accounts (profit or loss over
the period)

The format is:

Profit / (Loss) = Revenues - Expenses

Difference between
Income statement of
profitable and non
profitable organization

Profitable organization: The

statement comprises of sales and
revenue and the net impact is called
profit or Loss.
Non Profitable organization: The
statement comprises of receipts and
payments and difference of these is
called surplus or deficit.

Broad structure of income

statement
1. operating activities:
Income.
Expenses (cost of sale, admin exp., selling and
distribution exp.)

2. Other activities:

(within the same

business)

Other income

(scrap sale, bi product

sale other then main business activity)

Other expense (other than normal

course of business activities like interest
expense)

3. Tax, financial cost, dividends

ABC Company Inc.

Income Statement
Jan 1, 2010 to Dec 31, 2010
Sales, gross
less: Sales Return

$291,025
$7,688

Net Sales

$283,337

Cost of Goods Sold

$196,708

Gross Profit

$86,629

Operating expenses:
Selling & Promotion

$45,013

General & Administration

$22,275

Total Operating expense

$67,288

Operating Profit

$19,341

Other Income & Expense:

Interest & Dividend Income
less: Interest Expense

$908
$2,293

Users of Income
statement
Business Owners & Executives
Business owners - They have the most direct
interest in how well the business is doing. The
better the business performs, the more
money they make.
Business executives - Managers (people
employed by the owners to run the business)
will get fired if the business performs poorly,
or get bonuses if it performs well!

Investors
Investors - Investors are only going to invest in
businesses with good business scorecards (financial
statements).

The Bank & Govt. Institutions

The bank - They are interested in the business
scorecards of businesses they have a relationship
with. For example, they may want to look at the
financial statements to see how risky it would be to
loan money to the business.
The government and tax authorities - They want to
know that the business is fulfilling their legal duties,
and in particular, that they are paying enough tax!
The financial statements give a good idea of how
much tax the business should be paying over.

Suppliers
Suppliers - Suppliers want to get paid by
the business they are supplying goods
to! So they may want to check the
financial statements of the business
before they even begin to make any
agreements to trade with them.

Conclusion
Income statement helps investors and creditors.
Determine the past financial performance of the
enterprise.
Predict future performance, and assess the
capability of generating future revenue streams
through the reporting of income and expenses.
In addition to tracking revenue, the income
statement can compare expenses from year to
year, indicating a firm's success in controlling
costs.