How To Read And Understand An Income Statement

The income statement also known as the profit and loss p l statement is the financial statement that depicts the revenues expenses and net income generated by an organization over a specific.

How to read and understand an income statement. We prepared an income statement example of apple to show you how to read and interpret it. How to read an income statement some aspects of income statements may seem obvious but other parts of income statements might leave you stumped. In conjunction with the cash flow statement balance sheet and annual report income statements help company leaders analysts and investors understand the full picture of a business s operational results so they can determine its value and efficiency and ideally predict its future trajectory. Every income statement begins with your company s revenues.

An income statement is a series of line items that should be read from top to bottom. The second is that an income statement is based on a few very simple concepts which you already understand. Income statement also known as a profit or loss statement p l is one of the major financial statements that shows all revenues and expenses of a business and how much profit or loss a company has made over a given time period. Sure a glance at your income statement may tell you how much you ve spent in a certain period of time and how much your business has made.

The items at the top of your income statement are the rough draft of your profitability including your revenue cogs and gross profit these numbers are what many people think of when determining a business s profitability but they don t show the whole picture. How to read and understand an income statement. Generally if you ask an accountant which financial report is the most important to understand they ll tell you it s the income statement followed by the balance sheet and cash flow report of course. You need to identify the parts of an income statement and to know what they mean before you can create one for your business or understand one created for your business.

How you calculate this figure will depend on whether or not you do cash or accrual accounting and how your company recognizes revenue. The basic suite of financial statements a company produces at least annually consists of the statement of cash flows the balance sheet or statement of financial position and the income statement.