What is an Income Statement?
Imagine you are the manager of a company and you want to know how much of the revenue coming in is spent on expenses and under what category heads. These revenues and expenses when tracked will help you to determine the operating performance of the company. Specific items that are causing unexpected expenditures can be pin-pointed. Income statements can also track dramatic increases in product returns or cost of goods sold as a percentage of sales. They also can be used to determine income tax liability.
An income statement is one of the financial statements of a company that shows the company’s revenues and expenses during a particular period. It is also known as the profit and loss statement.
It indicates how the revenues (money received from the sale of products and services before expenses are taken out, also known as the “top line”) are transformed into the net income (the result after all revenues and expenses have been accounted for, also known as “net profit” or the “bottom line”).
An income statement like a cash flow statement represents a period of time.
Owners and managers require financial statements to make important business decisions that affect its continued operations. Employees also need these reports in making collective bargaining agreements (CBA) with the management. Prospective investors make use of financial statements to assess the viability of investing in a business.
I will describe some of the important components of a financial statement. You can download our entire presentation of financial statements for a better understanding.
Component 1: Revenues - Inflows from producing/delivering goods or services.
Component 2: Expenses - Outflows, ie., costs involved in from producing/delivering goods or services
Component 3: The equation used in making an Income Statement Template is: Revenues - Expenses = Net Income (gains/loss)
Financial Statements form an important part of EduPristine’s Financial Modeling Course. We will teach you how to make the best financial statements using advanced techniques in excel.
The image below shows the income statement of LinkedIn Model.
You can download the Income statement template ( Filled / Unfilled ) to see how statements look on excel or download our presentation on financial statements for a better understanding on the topic. EduPristine’s extensive Financial Modeling course covers Financial statements in detail. To know more, quickly write an email to email@example.com.