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Income statement

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An income statement, also known as a profit and loss statement (P&L), summarizes a business's revenues, costs, and expenses over a specific period, typically a quarter or a year. It shows the company's ability to generate profit by increasing revenue, reducing costs, or both.

Here’s a general structure of an income statement:

Income Statement

For the Year Ended [Date]

Revenue:

  • Sales Revenue
  • Service Revenue
  • Other Revenue
  • Total Revenue

Cost of Goods Sold (COGS):

  • Beginning Inventory
  • Purchases
  • Ending Inventory
  • Total COGS
  • Gross Profit (Total Revenue - Total COGS)

Operating Expenses:

  • Selling Expenses
  • General and Administrative Expenses
  • Depreciation Expenses
  • Total Operating Expenses
  • Operating Income (Gross Profit - Total Operating Expenses)

Other Income and Expenses:

  • Interest Income
  • Interest Expense
  • Other Income
  • Other Expenses
  • Total Other Income/Expenses

Income Before Taxes (Operating Income + Total Other Income/Expenses)

Income Tax Expense

Net Income (Income Before Taxes - Income Tax Expense)

Explanation of Each Section:

  1. Revenue: Total income from sales or services before any expenses are deducted.

  2. Cost of Goods Sold (COGS): Direct costs attributable to the production of the goods sold by the company.

  3. Gross Profit: Revenue minus COGS indicates how much money is made before other operating expenses are deducted.

  4. Operating Expenses: Expenses incurred during normal business operations, which do not include COGS.

  5. Operating Income: Shows the profit earned from core business operations.

  6. Other Income and Expenses: Income and expenses not directly tied to operating activities.

  7. Income Before Taxes: The profit before tax deductions.

  8. Income Tax Expense: The amount the company must pay in taxes based on its taxable income.

  9. Net Income: The final profit the company has earned after all expenses, including taxes, have been deducted. This is often referred to as the "bottom line."

This structure is ideal for assessing the profitability and financial performance of a business over a specific period.