What is an Income Statement?

The income statement is a financial report that shows an entity's financial results over a specific period of time. The time period covered is usually for a month, quarter, or year, though it is possible that partial periods may also be used. This is the most commonly-used of the financial statements, and is the most likely statement to be distributed within a business for management review. The other components of the financial statements are the balance sheet and statement of cash flows.

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The Income Statement

The Interpretation of Financial Statements

Income Statement Presentation

The general classifications of information noted on the income statement are as follows:

Revenue
Cost of goods sold
Gross margin (revenues - cost of goods sold)
Selling, general and administrative expenses
Operating income (gross margin - selling, general and administrative expenses)
Other income and expense
Income tax expense
Net income or net loss

The selling, general and administrative expenses may be aggregated by department, or by the nature of the expenses being reported. A sample income statement presentation appears in the following exhibit.

Budgeted Income Statement Presentation

The information in the income statement may be paired with budgeted revenue and expense information, along with a variance column stating the difference between actual and budgeted results. Also, if a company is publicly-held, basic and diluted earnings per share must be stated on the face of the income statement.