Income statement Definition, example & format of income statement

Based on their analysis, they can come up with the best solutions to yield more profit. It is very important to recognize that profit does not represent cash. The income statement is a summary of the firm’s operating results during some time what is the first section of an income statement period. Those are summarized in the statement of cash flows, which is discussed briefly in the next section. Common size income statements include an additional column of data summarizing each line item as a percentage of your total revenue.

For example, a firm may rent some of its real estate or even benefit from the sales of manufacturing equipment. Sounds simple, but if we take a closer look at the statement, we’ll see several revenue and expense figures. To help you understand the Income Statement, we explain all of them, starting with the revenues. Net income, called the bottom line, is included in both income statement formats. The subtotal is called Other comprehensive income (loss), before tax.

Understanding an Income Statement

When preparing forecasted financial statements, many business plan writers assume an income tax rate of 20% or 30%. Functional area operating expenses, often listed as line items on an income statement, include general and administrative expenses, sales and marketing expenses, and research and development expenses. Most businesses use a multi step income statement which is more detailed than a single step or simple income statement.

• It includes only the core business and direct costs of performing that business.
• Operating expenses are expenses other than the cost of goods sold that the company spends in the operation of the business, including salaries, advertising, rental, utilities, office supplies, and depreciation expenses.
• The income statement may have minor variations between different companies, as expenses and income will be dependent on the type of operations or business conducted.
• Apple’s financial statement is built more for a horizontal analysis that compares the fourth quarter of 2022 to the fourth quarter of 2021.
• A total of $560 million in selling and operating expenses, and $293 million in general and administrative expenses, were subtracted from that profit, leaving an operating income of $765 million.

Operating expenses are expenses other than the cost of goods sold that the company spends in the operation of the business, including salaries, advertising, rental, utilities, office supplies, and depreciation expenses. Operating expenses are the expense element that can be classified into selling expenses and administration expenses. Cost of goods sold is the cost that occurs directly related to the sale that the company makes, which is usually referred to as direct cost.