Income Statement

An essential accounting document.

Dec 23, 2015 at 11:52PM

An income statement measures a company's financial performance over a specified period of time. Also known as a profit and loss (P&L) statement, statement of operations, or statement of income, it is one of three major financial statements used by companies to track revenues and expenses. The other major accounting statements are the balance sheet and the statement of cash flows, but whereas the balance sheet offers a snapshot of a company's finances at a single moment in time, the income statement covers a longer, predetermined period of time.

The operating section of an income statement
The operating section of an income statement contains details relating to revenues and expenses that result from a company's primary activities or operations. If a company is in the business of manufacturing automobiles, the operating section of its income statement would include information on the revenues and expenses arising from the manufacturing process and vehicle sales.

The non-operating section of an income statement
The non-operating section of an income statement contains details relating to revenues and expenses from activities that aren't tied to a company's primary operations. If a company that manufactures automobiles sells off a number of its storage facilities, any revenue it generates from the sale would be recorded as non-operating revenue. Similarly, if a company invests its assets and makes money as a result, those gains would be recorded in the non-operating section of the income statement.

Net income versus net loss
An income statement shows whether a company is profitable or not during a certain period of time. If a company's revenues and gains are greater than its expenses and losses, its income statement will record a net income. On the other hand, if its expenses and losses exceed its revenues and gains, then the income statement will record a net loss.

Showing a net income versus a loss can impact a company's ability to attract investors and secure financing. A company that records a net income is more likely to get a bank loan, for example, than a company whose income statement shows a net loss.

Earnings per share
If a company is publicly traded, its income statement will also contain information on its earnings per share. This figure is calculated by dividing the company's net income by its total number of shares. Similar to net income, a company's earnings per share serves as a measure of its profitability.

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