Income Statement Explained

Income statement is one of the most important of financial statements and it’s also known as profit and loss statement. It is also known as statement of operations and statement of income. The income statement shows the degree of profitability of a company in a specific period of time. The income statement of a company projects its revenues, expenses, gains and losses within a company. The cash inflows and cash outflows are not shown in this statement. This means that income statement does not show cash disbursement and cash receipts.

If the company is not operating in profitability the income statement shows a net loss at the end. If the income statement shows net loss most of the creditors do not extend credits to the company. There are different types of income statement formats such as single step income statement and multiple step income statement. Single step income statement can be represented as under:-

Net Income= (Revenues + Gains) – (Expense +Losses)

A most simplified form of income statement can be shown as under:-

Revenues + Gains = $108,000

Expenses + Losses = 90,000

Net Income = $18,000

Revenues and Gains are also categorized in different categories such as sales revenues, interest revenue, and assets sales revenue. In the same way expenses and losses are also categorize in different categories such as cost of goods sold, commissions expense, advertising and marketing expense and interest expense. The heading of income statement is one of the most important part of income statement as it shows the name of the company and the financial period for which the statement is made.

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