Income Statement Format – Analyzing and Arranging the Profit Margins into Three Levels

A statement measuring a company’s financial performance, the income statement, summarizes the revenues generated by the business and the expenses incurred by it. It is also known as the profit and loss statement, as well as a statement of revenue and expenses.

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Income Statement Format - Detailing the Income and Costs

The income statement shows the profitability of a company i.e. it indicates whether the company has made a profit or incurred a loss in the particular financial period. The income statement format is a standard one and begins with a header that states the period of time for which the statement is prepared, which is usually the financial year. The format is divided into the operating and non-operating sections. The operating section shows the revenues and expenses that are directly related to the company’s business i.e. the products and services the company provides. The non-operating section deals with the revenue and expenses associated with the activities that are not directly tied to the company’s operations. For example, the income from sale of fixed assets such as a land or machinery. For larger companies, the income statement format becomes more complex, but retains all the basic elements.

Company Income Statement - Indicator of Profitability

The company income statement is an important statement used by the management, accountants, auditors, bankers and investors. The statement shows the revenue (from sale of products and services before expenses are deducted) earned by the business and the expenses borne by it. Revenue is also known as the company’s top line. The revenue less expenses give the company’s net income, or the company’s bottom line. If this net income is a positive number, it is called as profit and if it is a negative number the company has incurred a loss. Profit calculated through the company income statement, after deducting all expenses is known as net profit, as against gross profit, which is calculated as revenues minus only the cost of goods sold.

Income Statement Sample

An income statement sample is available online at many accounting web sites, which will enable a company or a small business to generate its own statement. The operating section of the statement lists the revenue from sale of goods and services and the expenses, such as cost of goods sold, administrative expenses (also known as overheads and includes wages, utilities etc.) and depreciation on fixed assets. The non-operating section details any other income earned, other expenses, interest costs etc. The statement then computes the three levels of profit - gross profit, the net profit (or operating profit) and the profit after tax, which is the profit earned by the company for the given financial period.