An income statement, also known as a profit and loss statement (P&L), is a financial report that summarizes a company’s revenues and expenses over a specific period, typically a quarter or a year. Its primary purpose is to show the company’s financial performance, specifically whether it made a profit or incurred a loss during that period.

Key Components of an Income Statement
Revenues: The total income generated from sales of goods or services before any expenses are deducted. This can include:
Sales revenue
Service revenue
Other income (e.g., interest income)
Cost of Goods Sold (COGS): The direct costs attributable to the production of the goods sold by the company. This includes:
Raw materials
Direct labor
Gross Profit: Calculated as revenues minus COGS. It represents the profit made before deducting operating expenses.

Gross Profit

Revenues
−
COGS
Gross Profit=Revenues−COGS
Operating Expenses: Costs incurred in the normal course of business operations, which may include:
Selling, general, and administrative expenses (SG&A)
Depreciation and amortization
Research and development (R&D)
Operating Income: Calculated as gross profit minus operating expenses. It reflects the profit generated from core business operations.

Operating Income

Gross Profit
−
Operating Expenses
Operating Income=Gross Profit−Operating Expenses
Other Income and Expenses: This section includes non-operating income and expenses, such as:
Interest income
Interest expenses
Gains or losses from investments
Net Income: The final profit or loss after all revenues and expenses have been accounted for. It represents the company’s overall profitability.

Net Income

Operating Income
+
Other Income
−
Other Expenses
Net Income=Operating Income+Other Income−Other Expenses
Example of an Income Statement
Income Statement
For the Year Ended 2024
Revenues

• Sales Revenue $100,000
• Service Revenue $20,000
  Total Revenues $120,000
  Cost of Goods Sold
• COGS $50,000
  Gross Profit $70,000
  Operating Expenses
• SG&A $30,000
• Depreciation $5,000
  Total Operating Expenses $35,000
  Operating Income $35,000
  Other Income $2,000
  Other Expenses $1,000
  Net Income $36,000
  Purpose of an Income Statement
  Financial Performance: It provides a clear view of a company’s profitability over a specific period.
  Decision Making: Investors and management use it to assess the company’s performance and make informed business decisions.
  Comparative Analysis: It allows for comparison with previous periods or with other companies in the same industry.
  Overall, the income statement is a vital tool for evaluating a company’s financial health and operational efficiency.