Income statement - Citizendia

An Income Statement, also called a Profit and Loss Statement (P&L), is a financial statement for companies that indicates how Revenue (money received from the sale of products and services before expenses are taken out, also known as the "top line") is transformed into net income (the result after all revenues and expenses have been accounted for, also known as the "bottom line"). Financial statements (or financial reports) are formal records of a business' financial In business revenue or revenues is Income that a company receives from its normal business activities usually from the sale of goods and services Net income is equal to the Income that a firm has after subtracting costs and Expenses from the total Revenue. The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported. ManaGeR ( MGR) is a graphical Window system. The MGR server provides a builtin Window manager and windowed graphics Terminal emulation on color See Investor AB for the Swedish investment company An investor is any party that makes an Investment.

Charitable organizations that are required to publish financial statements do not produce an income statement. Instead, they produce a similar statement that reflects funding sources compared against program expenses, administrative costs, and other operating commitments.

1 Usefulness and limitations of income statement
2 Items on income statement
3 Complex example: Viacom, Inc. income statement
4 Top line
5 Bottom line
6 See also
7 References
8 External links

Usefulness and limitations of income statement

Income statements should help investors and creditors determine the past performance of the enterprise, predict future performance, and assess the capability of generating future cash flows.

However, information of an income statement has several limitations:

The items that might be relevant but cannot be reliably measured are not reported (e. g. brand recognition and loyalty).
Some numbers depend on accounting methods used (e. g. using FIFO or LIFO accounting to measure inventory level). FIFO and LIFO accounting methods are means of managing inventory and financial matters involving the money a company ties up within inventory of produced goods raw materials parts components Inventory is a list for goods and Materials, or those goods and materials themselves held available in stock by a Business.
Some numbers depend on judgments and estimates (e. g. depreciation expense depends on estimated useful life and salvage value). Depreciation is a term used in Accounting, Economics and Finance to spread the cost of an Asset over the span of several years

Items on income statement

Operating section

Revenue - Cash inflows or other enhancements of assets of an entity during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major operations. Creative accounting and earnings management are Euphemisms referring to Accounting practices that may ”follow the letter of the rules of Standard Usually presented as sales minus sales discounts, returns, and allowances.
Expenses - Cash outflows or other using-up of assets or incurrence of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major operations.
- General and administrative expenses (G & A) - represent expenses to manage the business (officer salaries, legal and professional fees, utilities, insurance, depreciation of office building and equipment, office rents, office supplies)
- Selling expenses - represent expenses needed to sell products (e. g. , sales salaries, commissions and travel expenses, advertising, freight, shipping, depreciation of sales store buildings and equipment)
- R & D expenses - represent expenses included in research and development
- Depreciation - is the charge for a specific period (i. Depreciation is a term used in Accounting, Economics and Finance to spread the cost of an Asset over the span of several years e. year, accounting period) with respect to fixed assets that have been capitalised on the balance sheet. Fixed asset, also known as property plant and equipment (PP&E is a term used in Accountancy for Assets and Property which cannot easily be In Financial accounting, a balance sheet or statement of financial position is a summary of a person's or organization's balances

Non-operating section

Other revenues or gains - revenues and gains from other than primary business activities (e. g. rent, patents). It also includes unusual gains and losses that are either unusual or infrequent, but not both (e. g. sale of securities or fixed assets).
Other expenses or losses - expenses or losses not related to primary business operations.

Irregular items

They are reported separately because this way users can better predict future cash flows - irregular items most likely won't happen next year. These are reported net of taxes.

Discontinued operations is the most common type of irregular items. Shifting business location, stopping production temporarily, or changes due to technological improvement do not qualify as discontinued operations.
Extraordinary items are both unusual (abnormal) and infrequent, for example, unexpected nature disaster, expropriation, prohibitions under new regulations. Note: natural disaster might not qualify depending on location (e. g. frost damage would not qualify in Canada but would in the tropics).
Changes in accounting principle is, for example, deciding to depreciate an investment property that has previously not been depreciated. However, changes in estimates (e. g. estimated useful life of a fixed asset) do not qualify.

Earnings per share

Because of its importance, earnings per share (EPS) are required to be disclosed on the face of the income statement. Earnings per share (EPS are the earnings returned on the initial investment amount A company which reports any of the irregular items must also report EPS for these items either in the statement or in the notes.

$\text{Earnings per share} = \frac{\text{Net income} - \text{Preferred stock dividends}}{\text{Weighted average of common stock shares outstanding}}$

There are two forms of EPS reported:

Basic: in this case "weighted average of shares outstanding" includes only actual stocks outstanding.
Diluted: in this case "weighted average of shares outstanding" is calculated as if all stock options, warrants, convertible bonds, and other securities that could be transformed into shares are transformed. This increases the number of shares and so EPS decreases. Diluted EPS is considered to be a more reliable way to measure EPS.

                                     24/7
                             Family Fitness and Fun
  
                              STATEMENTS OF INCOME
                
         
 Revenues                             $12,580. 2    $  10,900. 4     $  8,290. 3 
 Cost of sales                          6,740. 2       5,650. 1        4,524. 2 
------------------------------------------------------------------------------
    Gross profit                        6,835. 0       5,657. 3        3,270. 1 
 Selling, general and administrative 
  expenses                              3,624. 6       3,296. 3        3,034. 0 
 Other (income) expense, net            1,100. 3         (20. 0)          18. 0      
------------------------------------------------------------------------------
    Operating profit                    2,122. 1       2,166. 0        2,013. 1 
 Interest expense, net                    119. 7         124. 1          142. 8 
------------------------------------------------------------------------------
    Income before income taxes          2,102. 4       1,980. 9        1,870. 3 
 Provision for income taxes               680. 3         620. 6          582. 0 
------------------------------------------------------------------------------
    Net income                        $ 1,720. 1    $  1,421. 3     $  1,190. 3 
------------------------------------------------------------------------------

Complex example: Viacom, Inc. income statement

                                VIACOM INC.  AND SUBSIDIARIES 
                            CONSOLIDATED STATEMENTS OF OPERATIONS
                           (In millions, except per share amounts)      
----------------------------------------------------------------------------------------------
  Year Ended December 31,                                   2004         2003         2002
----------------------------------------------------------------------------------------------
 Revenues                                               $ 22,525. 9   $ 20,827. 6   $19,186. 8   
 Expenses:                      
    Operating                                             12,545. 8     11,879. 8    10,735. 5   
    Selling, general and administrative                    4,142. 1      3,732. 3     3,498. 6   
    Depreciation and amortization                            809. 9        741. 9       711. 8   
    Impairment charge (Note 3)                            17,997. 1            —            —   
----------------------------------------------------------------------------------------------
      Total expenses                                      35,494. 9     16,354. 0    14,945. 9   
----------------------------------------------------------------------------------------------
 Operating income (loss)                                 (12,969. 0)     4,473. 6      4,240. 9 
 Interest expense                                           (718. 9)      (742. 9)      (799. 1) 
 Interest income                                              25. 3         11. 7        12. 0   
 Other items, net                                              7. 6         (3. 0)       (32. 9) 
----------------------------------------------------------------------------------------------
 Earnings (loss) from continuing operations before 
  income taxes, equity in earnings (loss) of affiliated 
  companies and minority interest                        (13,655. 0)     3,739. 4     3,420. 9   
 Provision for income taxes                               (1,378. 6)    (1,497. 0)    (1,338. 3) 
 Equity in earnings (loss) of affiliated companies, 
  net of tax                                                 (20. 8)          . 1        (37. 3) 
 Minority interest, net of tax                                (5. 1)        (4. 7)        (3. 3) 
----------------------------------------------------------------------------------------------
 Net earnings (loss) from continuing operations          (15,059. 5)     2,237. 8      2,042. 0  
----------------------------------------------------------------------------------------------
 Discontinued operations (Note 2):                     
    Earnings (loss) from discontinued operations          (1,182. 7)      (718. 8)      255. 3   
    Income taxes, net of minority interest                    92. 4        (83. 6)       (90. 7)
----------------------------------------------------------------------------------------------
    Net earnings (loss) from discontinued operations      (1,090. 3)      (802. 4)       164. 6  
----------------------------------------------------------------------------------------------
 Net earnings (loss) before cumulative effect of 
  accounting change                                      (16,149. 8)     1,435. 4     2,206. 6   
 Cumulative effect of accounting change, net of minority 
  interest and tax (Note 1)                               (1,312. 4)       (18. 5)    (1,480. 9)
----------------------------------------------------------------------------------------------
 Net earnings (loss)                                   $ (17,462. 2)   $ 1,416. 9   $   725. 7   
----------------------------------------------------------------------------------------------
  
 Basic earnings (loss) per common share: 
    Net earnings (loss) from continuing operations         $ (8. 78)      $ 1. 28       $1. 16   
    Net earnings (loss) from discontinued operations       $  (. 64)      $ (. 46)      $  . 09   
    Net earnings (loss) before cumulative effect of 
     accounting change                                     $ (9. 42)      $  . 82       $ 1. 26   
    Cumulative effect of accounting change                 $  (. 77)      $ (. 01)      $ (. 84) 
    Net earnings (loss)                                    $(10. 19)      $  . 81       $  . 41   
 Diluted earnings (loss) per common share:                     
    Net earnings (loss) from continuing operations         $ (8. 78)      $ 1. 27       $ 1. 15   
    Net earnings (loss) from discontinued operations       $  (. 64)      $ (. 46)      $  . 09   
    Net earnings (loss) before cumulative effect of 
     accounting change                                     $ (9. 42)      $  . 82       $ 1. 24   
    Cumulative effect of accounting change                 $  (. 77)      $ (. 01)      $ (. 83) 
    Net earnings (loss)                                    $(10. 19)      $  . 80       $  . 41   

 Weighted average number of common shares outstanding:                     
    Basic                                                   1,714. 4     1,744. 0      1,752. 8   
    Diluted                                                 1,714. 4     1,760. 7      1,774. 8   

 Dividends per common share                                 $   -         $  . 25       $  . 12

Top line

The term "top line" refers to the total revenues or sales mentioned in the income statement. This refers to the fact that the total revenues collected by a company appears at the top of the income statement.

Bottom line

"Bottom line" is the net profit that is calculated after subtracting the expenses from revenue. Since this forms the last line of the income statement, it is generally referred to as the bottom line. Net income is equal to the Income that a firm has after subtracting costs and Expenses from the total Revenue. It is important to investors as it represents the profit for the year attributable to the shareholders.

References

Harry I. Accountancy or accounting is the measurement statement or provision of assurance about financial information primarily used by Lenders managers, Cash flow (also called net cash flow) is the balance of the amounts of Cash being received and paid by a business during a defined period of time sometimes tied In Financial accounting, a balance sheet or statement of financial position is a summary of a person's or organization's balances Wolk, James L. Dodd, Michael G. Tearney. Accounting Theory: Conceptual Issues in a Political and Economic Environment (2004). ISBN 0324186231.
Angelico A. Groppelli, Ehsan Nikbakht. Finance (2000). ISBN 0764112759.
Barry J. Epstein, Eva K. Jermakowicz. Interpretation and Application of International Financial Reporting Standards (2007). ISBN 9780471798231.
Jan R. Williams, Susan F. Haka, Mark S. Bettner, Joseph V. Carcello. Financial & Managerial Accounting (2008). ISBN 9780072996500.

External links

Income Statement Explanation with examples.
Understanding Income Statements
Understanding The Income Statement Article from Investopedia

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