How to Read Income Statement of your Company

How to Read Income Statement of your Company


What Is an Income Statement?

An income statement is part of the financial statement that shows the company’s financial performance over a specific accounting period. The income statement assesses the financial performance by providing a summary of the revenues and expenses of the company through both operating and non-operational activities.

The Main Components of Income Statements

The income statements have three main components.

  • Revenues. The amounts obtained through the sale of goods and the providing of services.
  • Expenses. Determines the cost of goods sold, selling, general and administrative (SG&A) expenses, and interest expense.
  • Certain gains and losses. The noncurrent asset for an amount that is different from its book value statement.

What Does an Income Statement Look Like?

The income statement is broken down into two parts: operating and non-operating.

The operating section of the statement example in pdf income reports the revenues from production minus the operating expenses. The expenses that can be shown in the operating section are cost of goods sold, research and development costs and SG&A costs.

The non-operating section of the income statement includes any related to the nonoperating areas of the business analysis. It shows the revenues and expenditures of the company from the intangible property of the business might own or the sale of the old business operation.

How Do You Find the Net Sales on an Income Statement?

  • Gross sales. The figures, such as your cash, credit card, debit card and trade credit sales on the gross sales are the total income your business earned during an accounting period.
  • Sales discounts. These are the reward that you give to your customer for paying before a specific deadline.
  • Sales returns and allowances. It reduces your gross sales if the product is returned and the customer wants a full refund.
  • Net sales. In determining the net sales, look at the gross sales report, subtract the total sales discounts and the returns and allowances.

The Guidelines in Reading the Company’s Income Statement

If you are uncertain on reading the income statement of your company, here are the few things to do.

  • Check for errors. The errors are still inevitable even in printed statement example in excel regarding financial. if you found any errors, it will improve your understanding of how the numbers fit together.
  • Look at the positive numbers. If you see a positive number at the bottom of the income statement that means company earned more than it spent.
  • Find the source of income and identify if it makes sense to the business. The unsustainable source of income may have a huge impact on the next year.
  • Look at the expense categories. Commonly in any business, you will see salaries and wages, insurance, rent, supplies, interest, and others that make seems logical.
  • Find the biggest expense. Service businesses have a high number, for salaries.
  • Compare the numbers from previous years. Some of the numbers from previous years are written in the current income statement. If it does not show any percentage calculate them yourself.
  • Determine the relationship between numbers. If the numbers and their relationship seem odd to you, then there must be something wrong with the statement example in word of income.