Income Statement Examples
Income statement provides a summary of all the revenues and the expenses over the time period in order to ascertain the profit or loss of the company and the example of which includes income statement prepared by a company XYZ Ltd. Every half-yearly in order to present the different revenues and the expenses of the company during the period of half-year to present financial picture of the company.
An income statementAn Income StatementThe income statement is one of the company's financial reports that summarizes all of the company's revenues and expenses over time in order to determine the company's profit or loss and measure its business activity over time based on user requirements. (also known as profit and loss account) is one of the financial statementFinancial StatementFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels. that shows the income and expenses of a company for a specified time. Investors and business managers use the income statement to determine the financial health of the company.
Major parameters included in Income Statement –
- Revenue:Revenue:Revenue is the amount of money that a business can earn in its normal course of business by selling its goods and services. In the case of the federal government, it refers to the total amount of income generated from taxes, which remains unfiltered from any deductions. The revenue of the company is the income from all sources.
- Expenses: Cost incurred by a company like the cost of goods soldCost Of Goods SoldThe cost of goods sold (COGS) is the cumulative total of direct costs incurred for the goods or services sold, including direct expenses like raw material, direct labour cost and other direct costs. However, it excludes all the indirect expenses incurred by the company., operating expensesOperating ExpensesOperating expense (OPEX) is the cost incurred in the normal course of business and does not include expenses directly related to product manufacturing or service delivery. Therefore, they are readily available in the income statement and help to determine the net profit. come under this head.
- Gains/Losses: These are non-operating investment-related activities.
Income Statement Example (GAAP)
Generally Accepted Accounting PrincipleGenerally Accepted Accounting PrincipleGenerally accepted accounting principles (GAAP) are the minimum standards and uniform guidelines for the accounting and reporting. These standards prohibit firms from engaging in unethical business activities and enable for a more accurate comparison of financial reports to investors. has two classifications.
Example #1 – Single-Step Income Statement
In this, the classification of all expenses are mentioned under this head. Then they are deducted from the total income to get net income before tax. Both small and large companies use such a format.
There is no implication that one type of revenue or expense item has priority over another. All are treated equally.
- Revenues: All income and revenues are totaled.
- Expenses: All expenses are totaled.
- Net Income: Net income is derived from subtracting Expenses from Income. It is also referred to as “the bottom line.”
Assuming 200000 outstanding sharesOutstanding SharesOutstanding shares are the stocks available with the company's shareholders at a given point of time after excluding the shares that the entity had repurchased. It is shown as a part of the owner's equity in the liability side of the company's balance sheet.;
Suppose ABC is a USA based company. In the above example, the single-step income statement is followed where all the incomes from various sources are totaled, and all the expenses to different requirements are totaled. Net income is derived from the difference between the two. None of the entities is given priority. All are treated equally.
Example #2 – Multi-Step Income Statement
The multi-step income statement formatMulti-step Income Statement FormatMulti-Step Income Statement is the income statement of the company which segregates the total operating revenue of the company from non-operating revenue and total operating expenses of the company from non-operating expenses thereby separating the total revenue and expense of a particular period into two different sub-categories i.e., operating and the non-operating. comprises a gross profitGross ProfitGross Profit shows the earnings of the business entity from its core business activity i.e. the profit of the company that is arrived after deducting all the direct expenses like raw material cost, labor cost, etc. from the direct income generated from the sale of its goods and services. section where the cost of sales is deducted from sales, followed by income and expenses to reach an income before tax.
As compared to a single-step income statement, a multi-step income statement examples are more complex.
It also provides a more detailed overview of the company’s financial position.
The sections of a multi-step income statement include:
- Sales: This section includes total sales, the cost of goods sold, and the difference between the two, which is gross profit.
- Operating Expenses: These are the expenses that are directly related to Operations of the company like selling, general, and administrative expenses.
- Operating Income: It is the income earned from operating activitiesIncome Earned From Operating ActivitiesThe operating income formula (also known as the EBIT formula) is a profitability formula that helps in calculating a company's profits generated from core operations. The formula is a decision tool that allows investors to assess how much gross income will result in profit for a firm. The operating income can be calculated by deducting the cost of goods sold and operating expenses from total revenue. of the income. It is derived from the difference between gross profit and total operating expenses.
- Non-Operating Income or Expenses: Non-operating activities like investments involve expenses, revenue, gain, or loss. Such an entity comes under this category.
- Net Income: Any resulting profit or loss calculated as the difference between total income and total expenses is called net income.
Assuming the number of outstanding shares to be 6 lakhs;
Suppose XYZ is a US-based company, and here multiple-step income statement is followed. We can see that here all entities are assembled in a different category based on their characteristic.
- Gross profit is derived from subtracting COGS from Sales.
- Selling and administration are operating expenses and are shown separately.
The difference between gross profit and operating expenses gives operating income.
The same follows for non-operating expenses and income.
Income Statement Examples (IFRS)
Most companies follow IFRS in the world for financial reportingFinancial ReportingFinancial Reporting is the process of disclosing all the relevant financial information of a business for a particular accounting period. These reports are used by the stakeholders (investors, creditors/ bankers, public, regulatory agencies, and government) to make investing and other relevant decisions. .
The IFRS requires the following items in the income statement :
- finance cost
- The share of post-tax results of associates and joint ventures
- after-tax gain or loss.
- profit or loss for the period
Under IFRS, a company that shows operating results should include all the items of irregular or unusual nature.
Example #3 – IFRS based Income Statement
Suppose PQR is a UK based company that follows IFRS for reporting. In the above example, we can see that apart from normal entities, all the activities that are unusual and continuous are also taken into count.
Also, profit from joint venturesJoint VenturesA joint venture is a commercial arrangement between two or more parties in which the parties pool their assets with the goal of performing a specific task, and each party has joint ownership of the entity and is accountable for the costs, losses, or profits that arise out of the venture. and associates are also considered.
So, IFRS is a more comprehensive and informative type of reporting income statement.
Example #3 – IFRS based Income Statement
The income statement is one of the three fundamental financial statements that aims at the calculation of net income from the operations of the organization. GAAP and IFRS are the two major financial reporting methods. Income statement states the financial health of the organization.
This article has been a guide to Income Statement Examples. Here we discuss Income Statement examples using IFRS & GAAP accounting and also the Single Step and Multi-Step Income Statement. You may learn more about accounting from the following articles –