Income Statement: How to Read and Use It

The income statement, also known as the profit and loss (P&L) statement, is the financial statement that depicts the revenues, expenses and net income generated by an organization over a specific period of time. It is one of the most heavily scrutinized financial statements issued by every organization. Because of this, it is critical for users to have a sound understanding of the story every income statement is trying to tell.

Ultimately, horizontal analysis is used to identify trends over time—comparisons from Q1 to Q2, for example—instead of revealing how individual line items relate to others. If total revenue minus total operating expenses is a negative number, this is considered an operating loss. For a deeper dive into how to prepare financial statements, like an income statement and a balance sheet, check out our video on bookkeeping! The five bookkeeping steps we go over will help you get the most out of your income statement, and beyond. “Bottom line” is the net income that is calculated after subtracting the expenses from revenue. Since this forms the last line of the income statement, it is informally called “bottom line.” It is important to investors as it represents the profit for the year attributable to the shareholders.

Non-Operating Revenue

Reducing total operating expenses from total revenue leads to operating income of $109.4 billion ($245.1 billion – $135.7 billion). This figure represents the earnings before interest and taxes (EBIT) for Microsoft’s core business activities. An income statement is one of three key financial statements for small business owners—the other two being your balance sheet and your cash flow statement. The income statement is the most important of the three (but don’t tell the others we said that).

What is the difference between an income statement and a balance sheet?

Following operating expenses are other forms of income, known as income from continuing operations. This includes operating income, other net income, interest-linked expenses, and applicable taxes. Added these together with operating income arrives at a net income of $88.1 billion for Microsoft. The main thing you can learn from an income statement is how much money your business earned, and how much money your business spent to earn it. Your income statement lets you see your business’s financial health, so you can set realistic and helpful goals and budgets for the future—and see if those efforts have been successful. Because of its importance, earnings per share (EPS) are required to be disclosed on the face 2 us companies are rated aaa higher the us of the income statement.

Income From Continuing Operations

With 7.433 billion outstanding shares for Microsoft, its basic EPS came to $11.86 per share ($88.1 billion ÷ 7.433 billion). Similarly, for a company (or its franchisees) in the business of offering services, revenue from primary activities refers to the revenue or fees earned in exchange for offering those services. All non-owner changes in equity (i.e., comprehensive income) shall be presented either in the statement of comprehensive income or in a separate income statement and a statement of comprehensive income. Components of comprehensive income may not be presented in the statement of changes in equity. COGS only involves direct expenses like raw materials, labor and shipping costs.

When you depreciate assets, you can plan how much money is written off each year, giving you more control over your finances. Indirect expenses like utilities, bank fees, capital expenditures and rent are not included in COGS—we put those in a separate category. Our team is ready to learn about your business and guide you to the right solution. Follow Houston for all financial matters impacting small business owners today. A financial professional will offer guidance based on the information provided and offer a no-obligation call to better understand your situation. Our mission is to empower readers with the most factual and reliable financial information possible to help them make informed decisions for their individual needs.

1. An income statement reveals a company’s financial performance over a specific period, narrating the story of the business’s operational activities.
2. An income statement is one of the most important financial statements for a company.
3. Gross profit is what’s left of your revenue after deducting the cost of goods sold (COGS)—the direct costs related to producing goods or providing services.
4. A financial professional will offer guidance based on the information provided and offer a no-obligation call to better understand your situation.

An income statement is a financial statement that lays out a company’s revenue, expenses, gains, and losses during a set accounting period. It provides valuable insights into various aspects of a business, including its overall profitability and earnings per share. Income statement reports show financial performance based on revenues, expenses, and net income. By regularly analyzing your income statements, you can gather key financial insights about your company, such as areas for improvement or projections for future performance.

The above example is the simplest form of income statement that any standard business can generate. It is called the single-step income statement as it is based on a simple calculation that sums up revenue and gains and subtracts expenses and losses. The elements of an income statement include revenues, gains, gross profit, expenses, losses, and net income or loss. By generating income statements and other financial reports on custom carbonless ncr invoice books a regular basis, you can analyze the statements over time to see whether your business is turning a profit. You can use this information to make financial projections and more informed decisions about your business. The format of the income statement allows you to easily read and understand if and how profitable your business is.