- Income Statement
- Income Statement
- Cost of Goods Sold
- Direct Costs
- Indirect Costs
- Non Recurring Items
- EBIT vs EBITDA
- Depreciation – Formula
- EBITDA vs Operating Income
- Straight Line Depreciation Method
- Sum of Year Digits Method of Depreciation
- Declining Balance Method of Depreciation
- Amortization of Intangible Assets
- Unrealized Gains (Losses)
- Non Cash Expense
- Share based compensation
- Restructuring Cost
- Extraordinary Items
- Interest Income
- Double Taxation
- Net Loss
- Net Operating Loss (NOL)
- Tax Shield
- Sundry Expenses
- Interest vs Dividend
- EBITDA vs Net Income
- EBIT vs Net Income
- EBIT vs Operating Income
- Cost vs Expense
- Accounting Profit vs Economic Profit
- Income Tax vs Payroll Tax
- Tax credits vs Tax deductions
- Gross Income vs Net Income
- Profit vs Revenue
- Revenue vs Earnings
- Revenue vs Income
- Profit vs Income
- Revenue vs Sales
- Capitalization vs Expensing
- Income Statement vs Balance Sheet
- Statement of Comprehensive Income
- FOB Destination
- Explicit Cost
- Implicit Cost
- Direct cost vs Indirect Cost
- Fixed cost vs Variable cost
- Nopat vs Net Income
- Marginal Costing vs Absorption Costing
What is Income Statement?
Income statement provides a complete picture of the company's income and expenses during the year. Income Statement is very helpful as it helps financial analysts and investors understand the profitability of the company. Income Statement consists of items like Sales, Cost of Goods Sold, Selling General and Admin Costs, Depreciation Costs, and Income Taxes.
Top topics discussed in this Income Statement Basics sections are -
- What is the Income Statement Format and Template?
- What are the Costs of Goods Sold or COGS?
- What are Direct Costs and Indirect Costs in Income Statement?
- What are the Non-recurring Items?
- What is the difference between EBIT and EBITDA on Income Statement?
- What is Depreciation on Income Statement?
- What are unrealized gains or losses?
- What are noncash expenses?
- What is stock-based compensation?
- What are extraordinary items on Income Statement?
- Difference between Capitalization and Expensing?
- What is the difference between NOPAT and Net income?
- What is the difference between tax credit and tax deductions?
Income statement is one of the most important financial statements investors need to look at if they want to invest into a company.
Cost of Goods Sold on Income Statement
COGS is the cost that is directly related to the production of the goods sold in a company.
Direct costs are costs that can be identified easily as per the expenditure on cost object.
Indirect cost is a cost that can’t be easily identified for each cost object.
EBITDA is a measure of earnings before paying interest and taxes, arrived at by adding back depreciation and amortization and which is also widely used as a measure of a company’s operating performance.
Net Operating Profit After Taxes is being done to calculate the FCF before any merger or acquisition.
Non Recurring Items on Income Statement
Non Recurring Items financial statements are the report card of a company’s performance.
EBIT vs EBITDA
EBIT defined as any company’s profit including, all expenditures just leaving income tax and interest expenditures, whereas EBITDA is net income added to amortization, depreciation, taxes and interest.
Depreciation in Income Statement
Depreciation is the method of allocating the cost of a tangible asset over its useful life.
EBITDA vs Operating Income
EBITDA is an indicator used for calculating the profit-making ability of the company, whereas Operating income is an indicator which is used to ascertain the amount of profit generated by the company’s operating activities.
Straight Line Depreciation Method
SLDM, it is assumed that the asset uniformly depreciates over its useful life.
Amortization of Intangible Assets
Amortization of intangible assets refers to the expensing of the cost of the intangible assets of a firm over the total lifetime of those assets.
Unrealized Gains (Losses) in Income Statement
Unrealized gain/losses is an increase/decrease in the value of the asset that is not yet sold for cash.
Non Cash Expense in Income Statement
Non cash expenses are expenses that are not related to cash.
Share based compensation
Share-Based Compensation is a way companies use to reward their employees.
Restructuring charge is the cost which is incurred by the company is to reorganize the operations of the business to improve the overall efficiency and longer-term profit.
Extraordinary Items on Income Statement
Extraordinary items refer to gains and losses from specific business transactions which are unusual and rare from the normal course of business.
Double taxation in corporations must pay income tax at a corporate rate even before distributing the profits to the shareholders.
Net Operating Loss (NOL)
Net operating Loss is a loss arising in a period when the tax – deductible expenses exceed taxable revenue.
Tax shield is a reduction in taxable income for an individual or corporation achieved through claiming allowable deductions.
Sundry expenses are those expenses done in the regular course of business but are random in nature and comprise of a small number of expenses compared to the overall expenses of the business, relatively unimportant and insignificant.
Interest vs Dividend
Interest is the charge against the money that is offered to the borrower, whereas dividend is a percentage of profit that is offered to the shareholders of a company.
EBITDA vs Net Income
EBITDA is an indicator used for calculating a company’s profit-making ability, whereas Net income is an indicator which is used to calculate company’s total earnings.
EBIT vs Net Income
EBIT is an indicator used for calculating a company’s profit when considering mostly the Operating Income, whereas Net Income is an indicator which is used to calculate company’s total earnings.
EBIT vs Operating Income
EBIT is an indicator used for calculating a company’s profitability, whereas Operating Income is a term, used to calculate the amount of profit gained by a company’s operations.
Accounting Profit vs Economic Profit
Accounting Profit is the net income earned during an accounting year, whereas Economic Profit is the Surplus remaining after deduction of total costs from total revenue.
Income Tax vs Payroll Tax
Income tax consists of the local, state and federal taxes, whereas Payroll taxes consist of the medical care taxes, unemployment taxes, and the social security taxes.
Tax credits vs Tax deductions
Tax credits can help to reduce the liability at a Dollar to dollar level but cannot reduce overall liability to less than zero. Tax deductions, on the other hand, lower the taxable income and are computed using the percentage of marginal tax bracket.
Gross Income vs Net Income
Gross income is the immediate income a company makes by deducting the COGS from the net sales, whereas Net income is the culmination of both income from operations & income from other sources.
Profit vs Revenue
Profit is the amount left after deducting the expenses from the revenue, whereas Revenue is the product of the numbers of goods sold and the selling price per unit.
Revenue vs Earnings
Revenue can be defined as income generated from a business when a service or a product is sold, whereas Earnings can be defined as the bottom line profit after excluding the expenses of a business from their business activities or operations.
Revenue vs Income
Revenue and income can be found in the same financial statement, i.e. the income statement.
Profit vs Income
Revenue vs Sales
Revenue is the total amount of money generated by a company, whereas Sales are the total consideration accrued from selling goods or services by a company.
Capitalization vs Expensing
Capitalization is the recording of an expense an asset, whereas Expensing leads to greater profits while successively leading to greater taxes as well as improved business value.
Income Statement vs Balance Sheet
Income Statement shows how the business has performed for the period of time under consideration, whereas Balance Sheet provides us an overall picture of the company’s financials.
Statement of Comprehensive Income
Comprehensive income is narrowed-down income or income from its main operation.
FOB destination is the location where the ownership changes hand from the seller to the buyer and thus the actual sale of goods occurs.
Explicit costs are the costs that a company spends to pay for the wages, raw materials, utilities, advertisements, mortgage, rents etc.
Implicit costs do not represent real expenses, but are considered as a form of opportunity cost for utilization of a company’s assets or resources in general.
Direct cost vs Indirect Cost
Direct costs are costs that can be identified easily as per the expenditure on cost object, whereas indirect costs, the challenge is that we can’t identify the costs as per the cost object.
Nopat vs Net Income
NOPAT is calculated on operating income is use to find out the operating efficiency of the company, whereas Net Income is calculated by deducting all the expenses from revenue.
Marginal Costing vs Absorption Costing
Marginal costing is a method where the variable costs are considered as the product cost and the fixed costs are considered as the costs of the period. Whereas Absorption costing is a method that considers both fixed costs and variable costs as product costs.