Accounting Tutorials
- Income Statement
- Income Statement | Top Examples | Template | Format | Analysis
- Income Statement Basics
- Income Statement Examples
- Income Statement Formats
- Income Statement Template
- Income Statement Formula
- Multi Step Income Statement
- Profit and Loss Statement Template
- Profit And Loss Statement Format
- Book Profit
- Contribution Margin Income Statement
- Sales Revenue
- Net Sales Formula
- Variable Costing Income Statement
- Pro Forma Income Statement
- Purpose of Income Statement
- Income from Operations Formula
- Cost of Goods Sold
- Cost of Goods Manufactured (COGM)
- COGS Formula
- Cost of Goods Sold Examples
- Cost of Sales Formula
- SG&A Expenses (Selling, General & Administrative)
- Interest Expense Formula
- List of Operating Expenses
- Non Operating Income
- Pretax Income (Earnings Before Taxes)
- Income Tax Expense
- Income Tax Accounting
- Earned Income
- Average Total Cost Formula
- Gross Profit
- Gross Profit Formula
- Direct Costs
- Indirect Costs
- Prime Cost
- Duty vs Tariff
- EBITDA
- EBITDA Calculation
- Adjusted EBITDA
- EBIT (Earnings Before Interest and Tax)
- EBIT Calculation
- Net Operating Income
- Operating Income
- Turnover vs Profit
- Operating Profit vs Net Profit
- Net Income Formula
- EBITDA Formula
- Operating Expense (OPEX)
- Operating Expense Examples
- Interest Expense
- LTM EBITDA
- NOPAT
- Non Recurring Items
- EBIT vs EBITDA | Top Differences | Examples | Calculation
- Depreciation – Formula | Types | Most Comprehensive Guide
- Depreciation Expense Formula
- Depreciation Rate
- Straight Line Depreciation Method Formula
- Accumulated Depreciation Formula
- MACRS Depreciation
- Depreciation Tax Shield
- Accelerated Depreciation
- Written Down Value Method
- Depletion Expense
- EBITDA vs Operating Income
- Straight Line Depreciation Method
- Sum of Year Digits Method of Depreciation
- Declining Balance Method of Depreciation
- Land Depreciation
- Double Declining Balance Method
- Amortization of Intangible Assets
- Depreciation vs Amortization
- Unrealized Gains (Losses)
- Non Cash Expense
- Warranty Expense
- Other Expenses
- Accrued Income
- Share based compensation
- Restructuring Cost
- Extraordinary Items
- Interest Income
- Lease Payment
- Financing Costs
- Effective Tax Rate Formula
- Progressive Tax
- Taxable Income Formula
- Completed Contract Method
- Tax Shield Formula
- Double Taxation
- Marginal Tax Rate
- Tax Haven
- Net Loss
- Pro-Forma Earnings
- Margin vs Profit
- Net Operating Loss (NOL)
- Tax Loss Carry Forward
- Tax Loss Harvesting
- Tax Shield
- Sundry Expenses
- Trade Discount
- Trade Discount vs Cash Discount
- Percentage of Completion Method
- Interest vs Dividend | Top 9 Differences (with Infographics)
- EBITDA vs Net Income
- EBIT vs Net Income
- EBIT vs Operating Income
- Above the Line vs Below the Line
- Operating Income vs Net Income
- Cost vs Expense
- Expense vs Expenditure
- Accounting Profit vs Economic Profit
- Income Tax vs Payroll Tax
- Tax credits vs Tax deductions
- Tax Evasion vs Tax Avoidance
- Sales Tax
- Excise Tax
- Indirect Tax
- Direct Tax vs Indirect Tax
- Tax Lien
- Value Added Tax (VAT)
- Ad Valorem Tax
- Estimated Tax
- Proportional Tax
- Tax-Exempt
- Marginal Tax Rate Formula
- Regressive Tax
- Regressive Tax Examples
- Gross Income vs Net Income
- Profit vs Revenue
- Revenue vs Earnings
- Revenue vs Net Income
- Revenue vs Income
- Profit vs Income
- Revenue vs Sales
- Revenue vs Turnover
- Capitalization vs Expensing
- Income Statement vs Balance Sheet | Top 5 Differences You Must Know!
- Statement of Comprehensive Income | Items | Colgate Example
- Variance Analysis
- Other Comprehensive Income
- Partial Income Statement
- Income Summary Account
- FOB Destination
- Explicit Cost
- Implicit Cost
- Direct cost vs Indirect Cost
- Fixed Cost
- Fixed cost vs Variable cost
- Price vs Cost
- Hard Cost vs Soft Cost
- Overhead Costs
- Nopat vs Net Income
- Marginal Costing vs Absorption Costing
- Marginal Cost Formula
- Margin vs Markup
- Markup Formula
- Contribution Margin vs Gross Margin
- Accounting Basics (80+)
- Bookkeeping (52+)
- Balance Sheet (30+)
- Assets (109+)
- Liabilities (68+)
- Shareholders Equity (91+)
- Cash Flow Statement (17+)
- Accounting Careers (27+)
- Accounting Books (8+)
- Budgeting in Finance (31+)
Related Courses
Table of Contents
What is Income Statement Formula?
The term “income statement” refers to one of the three primary financial statements that are used to summarize the financial performance of a company over the entire reporting period. The income statement is also referred to as the statement of earnings or profit and loss (P&L) statement. The income statement formula calculation is done by a single step or multiple steps.
In the case of a single step, the income statement formula is such that the net income is derived by deducting the expenses from the revenues. Mathematically, it is represented as,
Net Income = Revenues – Expenses
In case of multiple steps, first the gross profit is calculated by subtracting the cost of goods sold from revenues, then the operating income is computed by deducting operating expenses from gross profit and finally the net income calculation is done by adding operating income and non-operating items.
Income Statement Formula is represented as,
- Gross Profit = Revenues – Cost of Goods Sold
- Operating Income = Gross Profit – Operating Expenses
- Net income = Operating Income + Non-operating Items
The income statement formula under multiple step method can be aggregated as below,
Net income = (Revenues + Non-operating items) – (Cost of goods sold + Operating expenses)
Explanation of the Income Statement Formula
Under the single step method, the formula for income statement calculation is done by using the following steps:
Step 1: Firstly, the total of all the revenue generating source has to be noted from the profit and loss statement.
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Step 2: Next, determine all the expenses pertaining to the relevant revenues.
Step 3: Finally, the formula for net income can be derived by deducting the expenses from the revenues as shown below.
Net income = Revenues – Expenses
Under the multiple step income statement method, the income statement equation calculation is done by using the following steps:
Step 1: First of all, determine the total revenues from the income statement.
Step 2: Next, determine the cost of goods sold from the profit and loss account. Cost of goods sold primarily includes raw material cost. Now, in this step, the gross profit can be calculated by deducting the cost goods sold from the revenues as shown below.
Gross profit = Revenues – Cost of goods sold
Step 3: Next, the operating expenses are also collected from the income statement. Operating expenses primarily include selling expense, administrative expense etc. Now, in this step, the operating income can be calculated by deducting operating expenses from the gross profit as shown below.
Operating income = Gross profit – Operating expenses
Step 4: Next, determine the non-operating items such as interest income, one-time settlements etc. Finally, the net income calculation is done by adding the net of non-operating items (= non-operating income – non-operating expense) to the operating income as shown below.
Net income = Operating income + Non-operating items
Example of Income Statement Formula (with Excel Template)
Let us take the real-life example of Apple Inc.’s annual report as on September 29, 2018. Fill up the blank spaces on the basis of the following available information.
Below is data for calculation of Apple Inc.’s annual report.
Gross Profit
Therefore, Gross Profit can be calculated as,
Gross profit = Net sales – Cost of goods sold
= $215,639 Mn – $131,376 Mn
Gross Profit for 2016 will be –
Gross Profit for 2016 =$84,263
Operating Income
Therefore, Operating Income can be calculated as,
Operating income = Gross profit – Operating expenses
= $84,263 Mn – $10,045 – $14,194
Operating Income for 2016 will be –
Operating Income for 2016 = $60,024
Net Income
Therefore, Net Income can be calculated as,
Net income = Operating income + Non-operating items
=$60,024 Mn + $1,348 – $15,685
Net Income for 2016 will be –
Net Income for 2016 =$45,687
Similarly, we can calculate gross profit, operating income and net income for 2017 & 2018 and also you can refer the below given excel template for the same.
Relevance and Use of Income Statement Formula
The understanding of the income statement formula is very important for people who are interested in actively trading in the stock market or analyst who investigates the financial performance of a particular company. They are required to know how to read financial statements, including the income statement.
It is to be noted that net income is not the same as cash profit. Nevertheless, the ability of a company to generate healthy net income over a long period of time can be seen as a positive for it is stock and bond prices because it is the net income that compensates the shareholders for the risks that they have taken. In case a company is unable to generate enough profit, then the value of the stock is likely to plummet. In short, a company with healthy earnings will have higher stock and bond prices.
Recommended Articles
This has been a guide to Income Statement Formula. Here we discuss how to calculate Income Statement items like gross profit, operating income & net income along with the practical examples and downloadable excel sheet. You can learn more about accounting from the following articles –
- Variable Costing | Definition
- Financial Statements Objectives
- Non-Operating Income Formula
- Components of Cost of Goods Manufactured (COGM)
- Profit and Loss Statement Template
- Income Statement Overview
- Main Purpose of Income Statement
- Calculate Variable Costing Income Statement
- Meaning of Comparative Income Statement
