The income statement
of a company is often referred to by managers as the “P
& L” for “profit and loss” statement.
The income statement is the financial result of a company
over a period of time. Most businesses produce a monthly income
statement. Public companies will report a quarterly income
statement to the Securities and Exchange Commision (SEC).
The income statement can be simply stated by the formula:
Net Income = Revenue – Expenses
The revenue is the amount of money a company receives from
selling its products. The expenses are all that occurred during
the specific time period.
The income statement is often broken down into much detail.
The expenses are listed as “line items” in different
categories. Some categories are also broken down to further
depict the actual expense. For example, manufacturing expense
would have several different line items.
The total direct expenses for the time period are combined
and listed as the “Cost of Goods Sold”. These
expenses are the direct costs to the company in acquiring
raw material inventory and turning it into a product. This
includes both the material and labor it takes to produce a
final saleable product.
The income statement shows the “gross profit”,
“operating profit”, and “net profit”
for the time period.