what is section of income statement and explanation for each section
The income statement is a financial statement that shows a company's revenues, expenses, and net income for a specific period of time. It is also known as the statement of income, statement of operations, or profit and loss statement.
There are typically several sections in an income statement. The exact presentation may vary depending on the company and industry, but the main sections are generally as follows:
1. Revenue/Sales: This section represents the amount of money generated through the sale of goods or services. It includes sales revenue, fees, commissions, and any other income earned from the primary business activity.
2. Cost of Goods Sold (COGS): This section deducts the direct costs associated with producing or delivering the goods or services sold. It includes the cost of raw materials, labor, manufacturing overhead, and any other costs directly attributable to production.
3. Gross Profit: This section is obtained by subtracting the COGS from the revenue. It represents the profit left after subtracting the direct costs of producing goods or services.
4. Operating Expenses: This section includes all the indirect costs incurred in running the day-to-day operations of the business. It typically includes expenses like research and development, marketing, salaries, rent, utilities, and other overhead costs.
5. Operating Income: This section is obtained by subtracting the operating expenses from the gross profit. It represents the profit or loss generated from the core operations of the business.
6. Other Income/Expenses: This section includes non-operating income and expenses that are not directly related to the main business activity. It may include gains or losses from the sale of assets, interest income, interest expense, dividends received, and other similar items.
7. Income Before Taxes: This section is obtained by adding or subtracting other income/expenses from the operating income. It represents the profit or loss before taxation.
8. Income Tax Expense: This section is used to calculate the income tax liability based on the applicable tax rate. It represents the portion of the income before taxes that the company is obligated to pay as income tax.
9. Net Income: This section is obtained by subtracting the income tax expense from the income before taxes. It represents the final profit earned by the company after all expenses, including taxes, have been accounted for.
It is important to note that the presentation and labeling of these sections may differ between companies and accounting standards, so it is essential to review the specific income statement of a company to understand its particular layout and sections.