Income Statement

INCOME STATEMENT
An income statement shows how much money the company

made in a defined time period, such as last month, last quarter or
last year.
The statement starts with the money the company brought in and
then subtracts the expenses associated with producing that
income, such as the cost of supplies, payroll and office rental.
This statement also subtracts expenses such as depreciation and
any items that were returned. When all of the deductions are
made, the result is the company's net income or net loss for the
time period show on the statement.
The Income Statement is one of a company’s core financial
statements that shows their profit and loss over a period of time.
The profit or loss is determined by taking all revenues and
subtracting all expenses from both operating and non-operating
activities.
The statement is divided into time periods that logically follow
the company’s operations.
The most common periodic division is monthly (for internal
reporting), although certain companies may use a thirteen-period
cycle. These periodic statements are aggregated into total values
for quarterly and annual results.
This statement is a great place to begin a financial model, as it
requires the least amount of information from the balance sheet
and cash flow statement. Thus, in terms of information, the
income statement is a predecessor to the other two core
statements.
Components of an Income Statement
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. However, there
are several generic line items that are commonly seen in any
income statement.
The most common income statement items include:

Revenue/Sales
Sales Revenue is the company’s revenue from sales or services,

displayed at the very top of the statement. This value will be the
gross of the costs associated with creating the goods sold or in
providing services. Some companies have multiple revenue
streams that add to a total revenue line.
Cost of Goods Sold (COGS)
Cost of Goods Sold (COGS) is a line-item that aggregates the

direct costs associated with selling products to generate revenue.
This line item can also be called Cost of Sales if the company is a
service business. Direct costs can include labor, parts, materials,
and an allocation of other expenses such as depreciation (see an
explanation of depreciation below).
Gross Profit
Gross Profit Gross profit is calculated by subtracting Cost of

Goods Sold (or Cost of Sales) from Sales Revenue.
Marketing, Advertising, and Promotion Expenses
Most businesses have some expenses related to selling goods

and/or services. Marketing, advertising, and promotion expenses
are often grouped together as they are similar expenses, all
related to selling.
General and Administrative (G&A) Expenses
SG&A Expenses include the selling, general, and administrative

section that contains all other indirect costs associated with
running the business. This includes salaries and wages, rent and
office expenses, insurance, travel expenses, and sometimes
depreciation and amortization, along with other operational
expenses. Entities may, however, elect to separate depreciation
and amortization in their own section.
EBITDA
While not present in all income statements, EBITDA stands for

Earnings before Interest, Tax, Depreciation, and Amortization. It
is calculated by subtracting SG&A expenses (excluding
amortization and depreciation) from gross profit.
Depreciation & Amortization Expense
Depreciation and amortization are non-cash expenses that
are created by accountants to spread out the cost of capital
assets such as Property, Plant, and Equipment (PP&E).
Operating Income (or EBIT)
Operating Income represents what’s earned from regular
business operations. In other words, it’s the profit before
any non-operating income, non-operating expenses,
interest, or taxes are subtracted from revenues. EBIT is a
term commonly used in finance and stands for Earnings
Before Interest and Taxes.
Interest
Interest Expense. It is common for companies to split out
interest expense and interest income as a separate line
item in the income statement. This is done in order to
reconcile the difference between EBIT and EBT. Interest
expense is determined by the debt schedule.
Other Expenses
Businesses often have other expenses that are unique to their

industry. Other expenses may include fulfillment, technology,
research and development (R&D), stock-based compensation
(SBC), impairment charges, gains/losses on the sale of
investments, foreign exchange impacts, and many other expenses
that are industry or company-specific.
EBT (Pre-Tax Income)
EBT stands for Earnings Before Tax, also known as pre-tax

income, and is found by subtracting interest expense from
Operating Income. This is the final subtotal before arriving at net
income.
Income Taxes
Income Taxes refer to the relevant taxes charged on pre-tax

income. The total tax expense can consist of both current taxes
and future taxes.
Net Income
Net Income is calculated by deducting income taxes from pre-tax

income. This is the amount that flows into retained earnings on
the balance sheet, after deductions for any dividends.
REFERENCES
• https://bizfluent.com/types-of-different-business-financial-
statements.html
• https://corporatefinanceinstitute.com/resources/
accounting/income-statement/
• https://www.investopedia.com/terms/i/
incomestatement.asp

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INCOME STATEMENT

An income statement shows how much money the company

The most common income statement items include:

Sales Revenue is the company’s revenue from sales or services,

Cost of Goods Sold (COGS) is a line-item that aggregates the

Gross Profit Gross profit is calculated by subtracting Cost of

Most businesses have some expenses related to selling goods

SG&A Expenses include the selling, general, and administrative

While not present in all income statements, EBITDA stands for

Businesses often have other expenses that are unique to their

EBT stands for Earnings Before Tax, also known as pre-tax

Income Taxes refer to the relevant taxes charged on pre-tax

Net Income is calculated by deducting income taxes from pre-tax

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