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 statement (also known as profit and loss account) is one of the financial statement 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 of the company is the income from all sources.
- Expenses: Cost incurred by a company like the cost of goods sold, operating expenses come under this head.
- Gains/Losses: These are non-operating investment-related activities.
Income Statement Example (GAAP)
Generally Accepted Accounting Principle has two classifications.
Example #1 – Single-Step Income Statement
Under this, the classification of all expenses is mentioned under this head, and then they are deducted from the total income to 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 shares.
Explanation #1
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 format comprises a gross profit 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 activities 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.
Explanation #2
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)
IFRS is followed by most companies in the world for financial reporting.
The IFRS requires the following items in the income statement :
- revenue
- 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
Explanation #3
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 in nature are also taken into count.
Also, profit from joint ventures and associates are also considered.
So, IFRS is a more comprehensive and informative type of reporting income statement.
Example #3 – IFRS based Income Statement
Conclusion
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.
Recommended Articles
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