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Anatomy of an Income Statement

April 22, 2008 by NPSIS Jason Klein

by NPSIS: Jason Klein

The income statement which is commonly referred to as a profit and loss statement summarizes an organization’s revenues (sales) and expenses. The time frame that an income statement reflects should be displayed in its heading. An income statement measures profitability and recognizes revenues when they are realized or when the service is rendered.

Basically the information found on a business Income Statement is revenue, expense, and profit / loss.

Revenue can be defined as the total income that an organization receives. The revenue is generally further broken down into sub-categories or displayed on different lines based on whether the income was derived from normal business operations or not.

Expense can be defined on an income statement simply as the businesses’ trade of value or money from the business to a different entity. Just as revenue, expenses are similarly categorized on an Income Statement. For example, Cost of Goods Sold should only reflect the direct cost or expense of producing the businesses’ product or service, while your administrative costs would be on a different line.

1. Excel can be configured to provide the data for these statements.

2. Calc is a free Excel-like product from OpenOffice that can be setup to provide the data to prepare these statements.

3. Quickbooks is a Small Business accounting program that can be used to provide these statements.

By using the data provided by the Income Statement you can determine whether the company is profitable (more value coming into your business than going out) but you will need to utilize the cash flow statement and balance sheet to give a full picture of the company’s health.

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Filed Under: Investing Tagged With: Investing

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