Income Statement
Income Statement
Income Statements commonly come in two formats
An income statements may also be referred to as a profit and loss statement (P&L), revenue statement, statement of financial performance, earnings statement, operating statement or statement of operations. A company's financial statement indicates how the revenue, money received from the sale of products and services before expenses are taken out, is transformed into the net income, the result after all revenues and expenses have been accounted for, also known as Net Profit. It displays the revenues recognized for a specific period, and the cost and expenses charged against these revenues, including write-offs and taxes. The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported.
Income statements are commonly prepared in two formats: multiple-step and single-step. In the multiple-step format revenues are often presented in great detail, cost of goods sold is subtracted to show gross profit, operating expenses are separated from other expenses, and operating income is separated from other income. In the single-step format, all expenses are combined in a single section including cost of goods sold.
The income statement is used to assess profitability, as the expenses for the period are deducted from the revenues. When net income is positive, it is a called profit. When negative, it is a loss. Net income increases when assets increase relative to liabilities. At the same time, other assets may decline in value and liabilities may increase. Thus, the balance sheet has a direct relation with the income statement.
However, information of an income statement has several limitations: items that might be relevant but cannot be reliably measured are often not reported. Some numbers depend on accounting methods used. While other numbers depend on judgments and estimates.