# Income statement > Mediated Wiki article. Canonical URL: https://mediated.wiki/source/Income_statement > Markdown URL: https://mediated.wiki/source/Income_statement.md > Source: https://en.wikipedia.org/wiki/Income_statement > Source revision: 1352843511 > License: Creative Commons Attribution-ShareAlike 4.0 International (https://creativecommons.org/licenses/by-sa/4.0/) Type of financial statement "Profit and loss" redirects here. For other uses, see [Profit and Loss (disambiguation)](/source/Profit_and_Loss_(disambiguation)). "Top line" redirects here. For the Italian film, see [Alien Terminator (1988 film)](/source/Alien_Terminator_(1988_film)). For the term in dancing, see [Glossary of partner dance terms § Top line](/source/Glossary_of_partner_dance_terms#Top_line). Part of a series on Accounting Constant purchasing power Historical cost Management Tax Major types Audit Budget Cost Forensic Financial Fund Governmental Management Social Tax Key concepts Accounting period Accrual Constant purchasing power Economic entity Fair value Going concern Historical cost Matching principle Materiality Revenue recognition Unit of account Selected accounts Assets Cash Cost of goods sold Depreciation / Amortization (accounting) Equity Expenses Goodwill Liabilities Profit Revenue Accounting standards Generally-accepted principles Generally-accepted auditing standards Convergence International Financial Reporting Standards International Standards on Auditing Management Accounting Principles Financial statements Annual report Balance sheet Cash-flow Equity Income Management discussion Financial statement analysis Bookkeeping Bank reconciliation Debits and credits Double-entry system FIFO and LIFO Journal Ledger / General ledger Trial balance Auditing Financial Internal Firms Report Sarbanes–Oxley Act People and organizations Accountants Accounting organizations Luca Pacioli Development History Research Positive accounting Sarbanes–Oxley Act Misconduct Creative Earnings management Error account Hollywood Off-balance-sheet Two sets of books v t e This article has multiple issues. 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Find sources: "Income statement" – news · newspapers · books · scholar · JSTOR (December 2009) (Learn how and when to remove this message) (Learn how and when to remove this message) Sankey diagram - income statement (by Adrián Chiogna) An **income statement** or **profit and loss** (**P&L**) **account**[1][note 1] is one of the [financial statements](/source/Financial_statement) of a company and shows the company's [revenues](/source/Revenue) and [expenses](/source/Expense) during a particular period.[1] It indicates how the [revenues](/source/Revenue) (also known as the *“top line”*) are transformed into the [net income](/source/Net_income) or net profit (the result after all revenues and expenses have been accounted for). The purpose of the income statement is to show [managers](/source/Management) and [investors](/source/Investor) whether the company made money (profit) or lost money (loss) during the period being reported. An income statement represents a period of time (as does the [cash flow statement](/source/Cash_flow_statement)). This contrasts with the [balance sheet](/source/Balance_sheet), which represents a single moment in time. [Charitable organizations](/source/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. This statement is commonly referred to as the *statement of activities*.[2] Revenues and expenses are further categorized in the statement of activities by the donor restrictions on the funds received and expended. The income statement can be prepared in one of two methods.[3] The single step income statement totals revenues and subtracts expenses to find the bottom line. The multi-step income statement takes several steps to find the bottom line: starting with the [gross profit](/source/Gross_profit), then calculating [operating expenses](/source/Operating_expenses). Then when deducted from the gross profit, yields income from operations. Adding to income from operations is the difference of other revenues and other expenses. When combined with income from operations, this yields income before taxes. The final step is to deduct taxes, which finally produces the [net income](/source/Net_income) for the period measured.[4] ## Usefulness and limitations of income statement Income statements may help investors and creditors determine the past financial performance of the enterprise, predict the future performance, and assess the capability of generating future cash flows using the report of income and expenses. It is very important for the business. However, information of an income statement has several limitations: - 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](/source/FIFO_and_LIFO_accounting) to measure [inventory](/source/Inventory#Accounting_for_inventory) level). - Some numbers depend on judgments and estimates (*e.g.*, [depreciation](/source/Depreciation) expense depends on estimated useful life and salvage value). - INCOME STATEMENT GREENHARBOR LLC - For the year ended DECEMBER 31 2010 € € Debit Credit Revenues GROSS REVENUES (including INTEREST income) 296,397 -------- Expenses: ADVERTISING 6,300 BANK & CREDIT CARD FEES 144 BOOKKEEPING 2,350 SUBCONTRACTORS 88,000 ENTERTAINMENT 5,550 INSURANCE 750 LEGAL & PROFESSIONAL SERVICES 1,575 LICENSES 632 PRINTING, POSTAGE & STATIONERY 320 RENT 13,000 MATERIALS 74,400 TELEPHONE 1,000 UTILITIES 1,494 -------- TOTAL EXPENSES (195,515) -------- NET INCOME 100,882 Guidelines for statements of comprehensive income and income statements of business entities are formulated by the [International Accounting Standards Board](/source/International_Accounting_Standards_Board) and numerous country-specific organizations, for example the [FASB](/source/FASB) in the U.S.. Names and usage of different accounts in the income statement depend on the type of organization, industry practices and the requirements of different jurisdictions. If applicable to the business, summary values for the following items should be included in the income statement:[5] ### Operating section - **[Revenue](/source/Revenue)** - Cash inflows or other enhancements of assets (including [accounts receivable](/source/Accounts_receivable)) of an entity during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major operations. It is usually presented as sales minus sales discounts, returns, and allowances. Every time a business sells a product or performs a service, it obtains revenue. This often is referred to as gross revenue or sales revenue.[6] - **[Expenses](/source/Expense)** - Cash outflows or other using-up of assets or incurrence of liabilities (including [accounts payable](/source/Accounts_payable)) during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major operations. - **[Cost of goods sold](/source/Cost_of_goods_sold) (COGS) / [cost of sales](/source/Cost_of_sales)** - represents the direct costs attributable to goods produced and sold by a business (manufacturing or merchandizing). It includes *material costs*, *direct labour*, and *overhead costs* (as in [absorption costing](/source/Absorption_costing)), and excludes operating costs (period costs) such as selling, administrative, advertising or R&D, etc. - **Selling, general and administrative expenses ([SG&A](/source/SG%26A) or SGA)** - consist of the combined [payroll](/source/Payroll) costs. SGA is usually understood as a major portion of non-production related costs, in contrast to production costs such as direct labour. - **Selling expenses** - represent expenses needed to sell products (e.g., *salaries of sales people, commissions and travel expenses, advertising, freight, shipping, depreciation of sales store buildings and equipment*, etc.). - **General and administrative (G&A) expenses** - represent expenses to manage the business (*salaries of officers / executives, legal and professional fees, utilities, insurance, depreciation of office building and equipment, office rents, office supplies*, etc.). - **[Depreciation](/source/Depreciation) / [amortisation](/source/Amortization_(accounting))** - the charge with respect to [fixed assets](/source/Fixed_asset) / [intangible assets](/source/Intangible_asset) that have been capitalised on the [balance sheet](/source/Balance_sheet) for a specific (accounting) period. It is a systematic and rational allocation of cost rather than the recognition of market value decrement. - **Research & development (R&D) expenses** - represent expenses included in research and development. *Expenses* recognised in the income statement should be analysed either by **nature** (raw materials, transport costs, staffing costs, depreciation, employee benefit etc.) or by **function** (cost of sales, selling, administrative, etc.). (IAS 1.99) If an entity categorises by function, then additional information on the nature of expenses, at least, – depreciation, amortisation and employee benefits expense – must be disclosed. (IAS 1.104) The major exclusive of costs of goods sold, are classified as operating expenses. These represent the resources expended, except for inventory purchases, in generating the revenue for the period. Expenses often are divided into two broad sub classifications selling expenses and administrative expenses.[6] ### Non-operating section - **Other revenues or gains** - revenues and gains from other than primary business activities (e.g., *rent*, *income from patents*, goodwill). It also includes unusual gains that are either unusual or infrequent, but not both (e.g., *gain from sale of [securities](/source/Security_(finance))* or *gain from disposal of [fixed assets](/source/Fixed_asset)*) - **Other expenses or losses** - expenses or losses not related to primary business operations, (e.g., *foreign exchange loss*). - **Finance costs** - costs of borrowing from various creditors (e.g., *[interest expenses](/source/Interest_expense)*, *bank charges*). - **Income tax expense** - sum of the amount of [tax](/source/Tax) payable to tax authorities in the current reporting period (current tax liabilities/ tax payable) and the amount of [deferred tax](/source/Deferred_tax) liabilities (or assets). ### Irregular items