INTRODUCTION TO INCOME STATEMENT
The Income Statement summarizes the revenues and the expenses of a corporation for an accounting period. This period could be a quarter, a month or a full year. The statement is also known by the names like profit & loss statement (P&L), statement of operations, statement of income and statement of earnings.
It is important to understand that an income statement is a reflection of revenue recognized by the corporation and its related expenses; it doesn’t capture the inflow and outflow of cash within the organization. Cash receipts or cash disbursements by a business should not be confused with revenue and expenses of the organization. Under accrual basis of accounting, revenue is recognized immediately in the same accounting period when the product or service is provided; regardless of when the cash is actually paid.
The format of income statements can vary depending on operational complexities of the organization. However, more or less each income statement generated as per US GAAP guidelines is likely to have following sections-
- Revenues
- Revenue from primary activities (Operating revenue)
- Revenue from secondary activities (Non-operating revenue)
- Expenses
- Expenses from primary activities (Operating expense)
- Expenses from secondary activities (Non-operating expense)
- Gains & losses
- Gains/Losses from sales of investments or long term assets
- Gains/Losses from lawsuits
An organization is said to have a positive income if sum of total revenues and gains exceeds the sum of its total expenses and losses. Otherwise the organization is said to be in losses. Net loss (instead of Net Income) would be reported on such income statements.