It is in any company’s best interest (or required by law for public companies) to generate the income statement periodically, along with the balance sheet, the cash flow statement, and the statement of shareholders’ equity. The income statement shows, in a snapshot, the revenue, expenses, and the operating profit or loss for the period. A company may present the document to a financial institution or business partner to prove its financial standing.
As mentioned, the income statement is one of the four fundamental accounting statements in corporate finance. This document is usually published quarterly and annually. Individual businesses may also create monthly income statements for internal use.
The Income Statement lists the revenue (may or may not be broken down by sources), expenses, and a loss or profit for the period based on the two. This document is published periodically and can be used as proof of solvency. A company’s Income Statements play a role in any decisions related to investing and borrowing. Lenders and investors often require a company to submit their income statements to assess risk.
Depending on the context and industry jargon, the Income Statement may also be known as:
Profit and Loss Statement
Profit and Loss Report
Income Report
Net Income Statement
Statement of Earnings
Companies need an Income Statement for evaluation purposes, including the solvency status. The law and the SEC require public companies to publish their Income Statements periodically. Companies may also need Income Statements when doing business with banks and business partners.
If the annual income statement shows profitability, a company may have a higher chance of getting approved for a loan or entering a partnership.
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The Income Statement is a critical document illustrating if a company is profitable for the period. Instead of creating the report yourself, you can rely on 360 Legal Forms to create professional income statements containing everything you need for internal or public consumption.
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To create your document, please provide:
Name of Company: The legal name of the company.
Period: The time frame the Income Statement covers.
Total Revenue: Cumulative revenue from services, sales, and other sources.
Revenue Deductions: These include price discounts, rebates, and refunds.
Total Costs: Costs of services and goods sold and additional primary costs.
Operating Expenses: Select all fields that apply.
Non-operating Gains: These include gains from the sales of assets, legal action, interest revenue, and other gains.
Non-operating Losses: Includes amortization and depreciation, legal operations, capital losses, interest expenses, and other losses.
Discontinued Operations (optional): The value of the gain or loss.
Profit or Loss from Extraordinary Items (optional): The weight of the gain or loss.
Income Tax Value: The total income tax expenses.
Business Expenses: All company expenses incurred in the period.
Continuing Operations Income: This is the difference in gains and losses after subtracting non-operating revenue, income taxes, and interest expenses.
Operating Income: Earnings before taxes and interests.
Revenue: Gross receipts for the period.
Below-the-line items: Income that will not show up in future Income Statements. These are revenue from extraordinary items, discontinued activities, and the effects of accounting changes.
Cost of Goods Sold (COGS): A company’s sales cost in providing its goods and services. It is the aggregate of direct costs (materials, parts, and labor) and other expenses.
Other expenses: Including costs such as foreign exchange impacts, research and development, impairment charges, stock compensation, and other company-specific expenses.
General and Administrative Expenses (G&A): The indirect costs of running the business. They include travel expenses, salaries and wages, insurance, office, and rent expenses. Amortization and depreciation are usually included in a separate section.
EBITDA: Earnings Before Interests, Tax, Deprecation, and Amortization. This is not present in every income statement, which is most often cited by public companies when reporting earnings to shareholders.
EBT: Earnings Before Tax is the operating income after interest expenses.
Income statements typically do not need to be signed. Optionally, it can be signed by the company’s accountant.
After reviewing the Income Statement, it should be kept in business records if classified as an internal document. An Income Statement can be sent to business partners and financial institutions if requested, but this is not required by law.
For a non-public company, the income statement does not need to be verified by any authority.
Single Step
This type of income statement reveals the revenue and expenses before the loss or profit. This document does not include a detailed report of the operating income, earnings before taxes, and gross profit. Companies of all sizes use the Single Step Income Statement.
Multi-Step
The Multi-Step Income Statement gives a more in-depth overview of a company’s financial position. All activities and incomes are displayed separately. While this document takes more time to compile, it is also a better indicator of the company's strengths and weaknesses.
Basic
This income statement is common for small businesses as it only includes the expenses, income, and net loss or profit.
Pro Forma
Rather than the current state of the company, the Pro Forma Income Statement projects future profitability. This Income Statement is used internally in the assessment of financial options.
Variable Costing
This is a statement that focuses solely on variable inventory costs, including overhead variances, labor, and material. Every other expense is determined as periodic.
Absorption Costing
The SEC’s GAAP (Generally Accepted Accounting Principles) require the absorption costing method for the manufacturing costs of specific products.
Common Size
The Common Size Income Statement analyzes each item to determine how it contributes to company profit.
Contribution Margin
This income statement shows the profitability of the relevant products, i.e. the difference in unit price and variable costs.
Consolidated
Companies with subsidiaries create a Consolidated Income Statement that presents the company and its subsidiaries as a single entity.
Partial
A Partial Income Statement uses the data from the full Income Statement but only for a specific period. This document is typically used only once.
Projected
This Income Statement predicts the result of the future. Unlike the Pro Forma Income Statement, the Projected Income Statement assumes that the company will not be changing its business practices.
CVP
An internal document, the CVP or Cost-Volume-Profit Income Statement estimates profitability using variable costs, fixed costs, sales mix, the volume of activity, and the per-unit selling price.
Comparative
This is a comparison of several income statements to evaluate a company’s performance over time and to identify trends. It usually uses income statements from the past five years.
Segmented
This Income Statement focuses on specific segments of a company. It can be used to identify product lines that are not profitable in assessing if they should be improved or axed.
At its core, the Income Statement shows if the company is profitable. In contrast, the balance sheet is a more detailed statement of the company's financial position that details its assets, liabilities, and shareholder's equity. The cash flow statement records the money received and spent, which illustrates if the company is liquid. Unlike the Income Statement, it does not account for non-cash items.
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