income statement example

Both the income statement and balance sheet are important tools for business owners and investors alike. By understanding how these two financial statements work, you can get a better grasp of a company’s overall financial health. A multi-step income statement is a profit and loss statement that shows how revenue and expenses are related to each other.

income statement example

A single-step income statement, on the other hand, is a little more straightforward. It adds up your total revenue then subtracts your total expenses to get your net income. In this example of income statement, the business has a net loss for this time period. The business owner can use this information to cut back on expenses and work toward increasing product sales. A common size income statement is generally how horizontal analysis is done in most companies when they evaluate the business performance over multiple time periods.


This means that every year, $1,800 would be recorded as depreciation expense on the profit and loss statement of Anael Farms for the next 10 years. The cost of goods sold (COGS), therefore, is the direct cost incurred before a product is produced and sold. Examples of the cost of goods sold include the cost of direct labor, the cost of buying materials, etc.

An example of this would be the CIGS expressed as 35% of the total revenue. This type of analysis can be useful when comparing with other companies in the industry. This type of analysis makes it simple to compare financial statements across periods and industries, and between companies, because you can see relative proportions. While the definition of an income statement may remind you of a balance sheet, the two documents are designed for different uses. An income statement tallies income and expenses; a balance sheet, on the other hand, records assets, liabilities, and equity. The income statement is also known as a profit and loss statement, statement of operation, statement of financial result or income, or earnings statement.

What Is an Income Statement?

The income statement is a good entry point to understand and evaluate a company’s revenue and costs, but it’s important to keep in mind that it’s not a document that can tell the full story. “Financial statements are designed to work as a system and not as stand-alone statements,” adds Badolato. Investors may use income statements, along with other financial statements, to make investing decisions and determine the financial health of a company. An income statement helps business owners decide whether they can generate profit by increasing revenues, by decreasing costs, or both.

  • An income statement is one of the three important financial statements used for reporting a company’s financial performance over a specific accounting period.
  • It helps analysts and research houses analyze, forecast, and perform corporate valuation in order to create future economic decisions in the company.
  • Generally, an income statement would not include an account that does not generate revenue or incur losses.
  • The net income, which is what is left after all expenses are deducted, is what is used to determine whether a business made a profit or suffered a loss.
  • For example annual statements use revenues and expenses over a 12-month period, while quarterly statements focus on revenues and expenses incurred during a 3-month period.

Finally, we arrive at the net income (or net loss), which is then divided by the weighted average shares outstanding to determine the Earnings Per Share (EPS). Indirect expenses like utilities, bank fees, and rent are not included in COGS—we put those in a separate category. Income statements are designed to be read top to bottom, so let’s go through each line, starting from the top.

Assessing the Cost of Goods Sold

Amanda Bellucco-Chatham is an editor, writer, and fact-checker with years of experience researching personal finance topics. Specialties include general financial planning, career development, lending, retirement, tax preparation, and credit. Our mission is to empower readers with the most factual and reliable financial information possible to help them make informed decisions for their individual needs. Income statements can be complex, but understanding the different components is crucial to interpretation. Losses can be the result of one-time or any other extraordinary expenses, or lawsuit expenses.

  • They are mostly made from one-time non-business activities that might not re-occur in the future.
  • It spent various amounts listed for the given activities that total of $10,650.
  • These are all expenses linked to noncore business activities, like interest paid on loan money.
  • It is calculated by subtracting the cost of goods sold from the revenue, and then dividing by the revenue.