Business, Legal & Accounting Glossary
Financial statement presenting revenues, expenses, and profit. Also called profit and loss account.
A financial report showing a company’s performance over a period of time by subtracting expenses from revenue to obtain net income. Sometimes known as a profit and loss statement (P&L) or earnings report.
An Income statement is a financial statement that appraises the financial performance of a specific company over a particular accounting period. The income statement describes how revenue is converted into net income. Revenue or ‘top line’ is money received from the sale of services and products before expenses. Net income or ‘bottom line’ is obtained after deducting all expenses from revenues. The income statement constitutes a definite time period,-in contrast with a balance sheet representing a single moment in time. The income statement is also known as ‘statement of revenue and expense’ or ‘profit and loss statement’.
The income statement is divided into two parts: the operating section and the non-operating section. The operating section discloses information about revenues and expenses relating to regular business operations of the company. This section is particularly read by business analysts and investors who are interested to acquire a stake or already own shares in a company. The non-operating section exposes revenue and expense information that is indirectly related to a company’s core activities. An example of a non-operating section is the selling of a factory by the company.
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.
Because of its importance, earnings per share (EPS) are required to be disclosed on the face of the income statement. A company which reports any of the irregular items must also report EPS for these items either in the statement or in the notes.
There are two forms of EPS reported:
An income statement assists creditors and investors to ascertain a company’s past performance, anticipate future performance and evaluate the company’s capability to bring forth cash flows in the future.
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 income statement has some glaring drawbacks. The major limitations of an income statement include:
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 appear at the top of the income statement.
“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. It is important to investors as it represents the profit for the year attributable to the shareholders.
It is a yearly publication that public corporations compulsorily provide to shareholders. The annual statement describes the company’s financial condition. The operations of the company are also comprehensively described. The mutual fund annual report informs about the financial entity’s performance and contains data to support the claim. The information is predominantly quantitative rather than qualitative.
The corporation’s income statement for the last fiscal year shows a 50% increase in sales.
A typical quarterly report to shareholders includes a summary of the company’s income statement.
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This glossary post was last updated: 24th April, 2020 | 2 Views.