Income Statement Example: A Simple Guide (Free Download) (2023)

Income Statement Example: A Simple Guide (Free Download) (1)

The income statement would be everyone's favorite financial document if people had favorite financial documents.

They tell us how much money we're making.

On the flip side, income statements also tell us how much we're losing. So, look out for that.

Since you're reading this post, I'll assume you're eager to dive right in, which is excellent news because we're about to embark on a mystical journey breaking down the critical information you need to begin using the income statement for smarter decision-making.

What is the Income Statement?

The income statement – also known as a P&L – displays the financial performance of a business over a specified period.

The chosen time interval differs depending on the purpose of the document.

For instance, yearly and quarterly income statements are often created for taxes, investors, and lenders, but these timeframes aren't as useful from a management perspective. Managers often need more immediately relevant information to make informed decisions.

Another important characteristic of the income statement is that it's historically facing. Meaning, it accounts for previous financial transactions that have already taken place.

"Future-facing," or forecasted income statements do exist -- called "Pro Forma's" -- but they're less official, and that's a topic for a different post.

Dates are always clearly marked, so it should be pretty easy to figure out how old the information is.

Now that we've properly oriented ourselves in time, space and purpose, you may notice the document is broken down into four primary sections. The first of which is revenue.

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**I'll make a brief mention that the description below only applies to "multi-step" income statements. Upon researching this post, I stumbled across "single-step" income statements, and I have no idea why they exist. They consist of only two sections (one for revenue, one for costs), and I imagine they are only used in situations where the reader is very scared of details.**

(Video) How to Prepare an Income Statement (Step by Step)

Revenue: Section 1

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Revenue is obviously the best section. This is where we report all the money we're making by providing awesome products and services.

We calculate revenue by multiplying the selling price of goods or services, by the total number of sales transactions.

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Seems simple enough. You have something someone wants, they give you money for it, and boom: revenue.

However, life isn't always so simple.

What happens when, instead of paying on the spot, your customer promises to pay sometime over the next 30 days? Something commonly experienced in custom projects and B2B transactions.

The world's a messy place.

I don't want you to worry, though. Wherever there's chaos in the world, we can be sure a team of specialists are working tirelessly to organize every scenario into little-bite-sized-treats. This is where accounting standards like Generally Accepted Accounting Principles (GAAP) come in (IFRS for international standards).

These are the rules that tell us when we're supposed to "recognize" revenue. I recommend reading them alongside a cozy fire.

The guidelines for revenue recognition vary widely, so to keep things simple we'll say revenue gets reported on the income statement once it's been earned.

After we earn and report revenue, we can then start to investigate what it's telling us.

Each line item in the revenue section represents a series of decisions and activities taking place behind the scenes -- in varying degrees of complexity -- that are coordinated in such a way to produce the revenue earned.

For instance, Tesla shows automotive sales as one of their revenue streams. It nicely sums up the revenue produced selling cars. However, behind this line item there’s sophisticated supply chains, manufacturing processes, and distribution networks designed to optimize the efficiency in delivering vehicles to customers.

(Video) Income Statement - Beginners Guide

Income Statement Example: A Simple Guide (Free Download) (5)

The complexity of our route to market often dictates the costs required to maintain a seamless revenue generating machine. Those costs are divided between two categories: Cost of Revenue and Operating Expenses.

Cost of Revenue: Section 2

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Cost of Revenue includes the money you spend directly on producing a product and delivering services to customers.

For the purposes of this post, we'll use the cost of revenue to represent the different names for the "Costs of" family. These names may indicate slight differences in accounting, but they are intended to separate the direct costs of producing revenue from money spent supporting the business.

Due to its direct relationship with revenue, we can often expect costs reported in this section to increase as revenue grows, especially if you're selling or producing physical products.

Companies selling digital goods would generally experience less variability in costs of revenue since there are typically no direct costs associated with selling an extra unit of digital product.

The sources driving costs of revenue have significant implications for the scalability of the business model. The results reported in gross profit clearly illustrate these consequences.

Gross Profit: First Hurdle for Profitability

Gross profit is what we have left after subtracting the costs of producing revenue from the revenue we've earned. The result of which is a story about how efficient the company is at generating revenue.

This efficiency is often measured by converting gross profit into a percentage called "Gross Margin" (gross profit divided by revenue).

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Looking at profitability through the lens of gross margin allows us to assess the relationship between costs and revenue as they change over time.

Standards for acceptable margins will differ across companies even within the same industry, but it does also allow a standardized basis for comparing performance against similar businesses.

Hopefully, whatever's left in this section is enough to cover operating expenses.

(Video) The INCOME STATEMENT for BEGINNERS

Operating Expenses: Section 3

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The operating expense section is where we'll find all the costs associated with running and supporting the business.

Sales, marketing, management salaries, research and development, rent and many other “overhead” expenditures go here.

These are generally expenses that aren't directly linked to the costs of producing a single unit of product, and it’s the first place to look for frivolous behavior.

**We all know those steak dinners aren't really business related**

Once we've accounted for all of our business costs, we're left with one of the most important elements of the income statement.

Operating Profit: an MBA Love Story

Operating profit, sometimes called EBIT, is what we have left over after paying all the costs of doing business.

Conceptually it is very close to a frequently cited term called "EBITDA."

EBITDA is an acronym that stands for earnings before interest, taxes, depreciation and amortization.

We transform EBIT into EBITDA by merely adding back any depreciation or amortization expenses.

EBITDA holds an exceptional status in the ranks of MBA students across the globe. It's considered the holy grail of financial performance, and they even hold weekly seminars worshipping EBITDA.

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I'm just kidding about that last part of course, but EBITDA does play a significant role in the world of management.

EBITDA's influence is a result of what it tells us about profitability. It's often used as a more accurate measure of profit from operations and is consequently viewed as a rough approximation for Operating Cash Flow.

(Video) The INCOME STATEMENT Explained (Profit & Loss / P&L)

The last section of the income statement can muddy the waters of profitability too much if we’re simply trying to understand how much money the business is generating.

Other Income & Expenses: Section 4

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The Other Income and Expenses category is for sources and uses of money that aren't considered standard outcomes of running the business.

Both revenues and expenses in this section reflect unusual or nonrecurring events.

For instance, your local dry cleaner may include rental income received from a property they own in this section. Even though the dry cleaner might make significant rental income, it isn't a revenue stream that should be factored into operating profit, since it has nothing to do with running the dry cleaning business.

With all of this in mind, we can begin to see why it’s popular to exclude this section when analyzing profits. Net income lumps everything together, which could be deceptive if significant nonrecurring events took place and we want to understand the health of the underlying business.

Net Income: The Buck Stops Here

We've finally reached the end of our glorious journey and arrived at net income. This is the total amount of money the business made or lost.

Theoretically, a positive value for net income means you have money left over to invest back into the business, service debt, or distribute to shareholders.

The possibilities are endless. You're profitable after all.

However, before you take everyone out to celebrate at Dave & Busters, keep in mind that net income may be misleading us due to the revenue (and expense) recognition rules we discussed above. Just because we've earned revenue doesn't mean it's sitting in our bank account yet. To understand how much we actually spent and collected, we'll need to take a look at the Cash Flow Statement.

BONUS CONTENT: FREE DOWNLOAD

Here's a spreadsheet including the income statements of a few of the worlds favorite companies. I've separated each of them out by the four sections we discussed above, so you can see how to put your new knowledge into practice.

Download Income Statement Examples

BONUS VIDEO: How to Interpret an Income Statement

Here's a video with some additional information on how to use a simple 5 step process for interpreting the results of an income statement:

(Video) Profit and Loss Statement Example – Template Included

FAQs

How do I download income statements to excel? ›

Moving your financial statements into Excel Follow
  1. Export your plan to Word.
  2. Navigate to the tables in the Word document that you wish to convert into a spreadsheet, and select all of the rows you want to include.
  3. Copy the selection:
  4. Open an Excel spreadsheet, select any cell, and paste the selection from your clipboard.
Oct 4, 2022

What is income statement PDF? ›

An income statement is a financial document or report that details a company's earnings/revenues and expenses over a specific period in the fiscal year. Companies use the income statement to calculate net income, a key component when it comes to taxation.

What is a simple income statement format? ›

The income statement is used to calculate the net income of a business. The P&L formula is Revenues – Expenses = Net Income. This is a simple equation that shows the profitability of a company.

What are the 4 steps to prepare an income statement? ›

How to prepare an income statement
  1. Step 1: Print the Trial Balance. ...
  2. Step 2: Determine the Revenue Amount. ...
  3. Step 3: Determine the Cost of Goods Sold Amount. ...
  4. Step 4: Calculate the Gross Margin. ...
  5. Step 5: Determine Operating Expenses. ...
  6. Step 6: Calculate Income. ...
  7. Step 7: Calculate the Income Tax. ...
  8. Step 8: Calculate Net Income.
Apr 4, 2022

Where can I download income statement? ›

an income statement in ATO online services through myGov or the ATO app. a payment summary from your employer.
...
ATO online services through myGov
  • Sign in to myGov.
  • select, ATO online services.
  • select, Employment.
  • select, Income statement.
Apr 21, 2022

Does Excel have an income statement template? ›

You can download your free income statement template in the format that suits you best. If you like using spreadsheets, you can use the free Microsoft Excel or Google Sheets invoice statement to get started. With the free income statement excel template, you'll gain access to a helpful income statement formula.

How do I download statements from a PDF? ›

How to download a bank statement pdf
  1. Visit your bank's website.
  2. Log in to Online Banking/Digital Banking/Internet Banking/eBanking etc.
  3. Click 'statements', 'e-documents', or 'download'
  4. Make sure you've selected the correct account.
  5. Choose a statement (or a date range)
  6. Choose the . ...
  7. Download*

What are the 5 elements of income statement? ›

The income statement presents revenue, expenses, and net income. The components of the income statement include: revenue; cost of sales; sales, general, and administrative expenses; other operating expenses; non-operating income and expenses; gains and losses; non-recurring items; net income; and EPS.

What are the three 3 types of income statement? ›

What Are the Different Types of Income Statements and How Are They Calculated?
  • Single-Step Income Statement.
  • Multi-Step Income Statement.
  • Generate Your Income Statement Using Deskera Books.

What are the 3 most important things on an income statement? ›

Earnings before taxes: This refers to your income before you pay any taxes on it. Gross profit: Calculated by subtracting the cost of goods sold from revenue, gross profit is the profit the company makes. Net income: Net income is the income left over after you subtract all of your expenses from your gross profits.

What is an income statement worksheet? ›

An income statement (sometimes called a profit and loss statement) lists your revenues and expenses, and tells you the profit or loss of your business for a given period of time.

What are the 4 income statements? ›

They are: (1) balance sheets; (2) income statements; (3) cash flow statements; and (4) statements of shareholders' equity.

What is a common income statement? ›

A common size income statement is an income statement in which each line item is expressed as a percentage of the value of revenue or sales. It is used for vertical analysis, in which each line item in a financial statement is represented as a percentage of a base figure within the statement.

What are the steps to calculate income? ›

The formula for calculating net income is:
  1. Revenue – Cost of Goods Sold – Expenses = Net Income. ...
  2. Gross Income – Expenses = Net Income. ...
  3. Total Revenues – Total Expenses = Net Income. ...
  4. Gross income = $60,000 - $20,000 = $40,000. ...
  5. Expenses = $6,000 + $2,000 + $10,000 + $1,000 + $1,000 = $20,000.
Oct 8, 2021

What is the proper order for income statement items? ›

Revenues are listed first, and then the company's expenses are listed and subtracted. At the bottom is of the income statement is the total. If revenues were higher than expenses, the business had net income for the period.

How do I get my 2022 income statement? ›

Your income information will be available in the following ways: your agent • myGov – income statement • your employer – payment summary. Your employer will let you know if there are any delays in the finalisation of your income statement.

How do I download income statement from myGov? ›

Log in to your myGov account. Select the Australian Taxation Office from 'Your Linked Services' (this will re-direct you to your online ATO account) Click on 'Employment' at the top of the screen. Select 'Income Statement'

Is income statement the same as profit and loss? ›

Profit and Loss (P&L) Statement

A P&L statement, often referred to as the income statement, is a financial statement that summarizes the revenues, costs, and expenses incurred during a specific period of time, usually a fiscal year or quarter.

What is the formula for income statement in Excel? ›

The Income Statement is also known as the “Profit & Loss” statement or “P&L.” Simply put, the formula is: “Revenue – Expenses = Income.” The easiest and best scenario is, “The higher the sales and the lower the expenses, the greater the income.” There are all types of expenses that are generated in a company and this ...

How do I create a spreadsheet for income and expenses? ›

In Excel first of all you need to open Excel. And then open a blank workbook. Then. We need to

What are 3 examples of accounts that are included in the income statement? ›

Definition of Income Statement Accounts

Operating revenues. Operating expenses. Non-operating revenues and gains. Non-operating expenses and losses.

How do I download and save as PDF? ›

To save a PDF, choose File > Save or click the Save File icon in the Heads Up Display (HUD) toolbar at the bottom of the PDF. The Save As dialog box is displayed. Choose the location where you want to save the PDF and then click Save.

Can you download a PDF and type on it? ›

Open the file in a PDF editor like Adobe Acrobat. Click the Edit PDF tool in the upper-right corner. Choose the text you want to edit and start writing.

Can you download a PDF from the Internet? ›

You can save PDF documents to your computer either from a web page's link or using the browser's 'Save As' command. Click and hold the mouse on the link to a PDF document (Control and click), then choose the Save This Link As/Download Link to Disk (depending on your browser) from the pop-up menu.

What 3 things make up an income statement? ›

An income statement is one of the three major financial statements, along with the balance sheet and the cash flow statement, that report a company's financial performance over a specific accounting period. The income statement focuses on the revenue, expenses, gains, and losses of a company during a particular period.

How do you create an income spreadsheet? ›

In Excel first of all you need to open Excel. And then open a blank workbook. Then. We need to

What 3 items are on an income statement? ›

The income statement presents revenue, expenses, and net income. The components of the income statement include: revenue; cost of sales; sales, general, and administrative expenses; other operating expenses; non-operating income and expenses; gains and losses; non-recurring items; net income; and EPS.

What is the most important line on an income statement? ›

Net income: Net income is the income left over after you subtract all of your expenses from your gross profits. It's the most important line of the income statement.

What accounts go on an income statement? ›

A few of the many income statement accounts used in a business include Sales, Sales Returns and Allowances, Service Revenues, Cost of Goods Sold, Salaries Expense, Wages Expense, Fringe Benefits Expense, Rent Expense, Utilities Expense, Advertising Expense, Automobile Expense, Depreciation Expense, Interest Expense, ...

What is a common size income statement? ›

A common size income statement is an income statement in which each line item is expressed as a percentage of the value of revenue or sales. It is used for vertical analysis, in which each line item in a financial statement is represented as a percentage of a base figure within the statement.

Does Excel have a income statement template? ›

Common Size Income Statement Excel Template

The Common Size income statement is a four-section template that you can rely on for an accurate financial analysis. Besides the profit and loss page, you also get a comparative balance sheet, additional ratio, and simple ratio.

What is the format of income? ›

The income statement can be presented in a “one-step” or “two-step” format. In a “one-step” format, revenues and gains are grouped together, and expenses and losses are grouped together. These amounts are then totaled to show net income or loss.

How do I list my monthly income? ›

Simply take the total amount of money (salary) you're paid for the year and divide it by 12. For example, if you're paid an annual salary of $75,000 per year, the formula shows that your gross income per month is $6,250.

What are the examples of expenses? ›

Examples of expenses include rent, utilities, wages, salaries, maintenance, depreciation, insurance, and the cost of goods sold. Expenses are usually recurring payments needed to operate a business.

Videos

1. Excel Tutorial: How to Create an Income Statement
(Erick Vazquez)
2. Statement of Comprehensive Income (Income Statement) | Full Example
(Counttuts)
3. How to Make an Income Statement or P&L - FREE Spreadsheet Template Included
(ProjectionHub)
4. Simple Income Statement Tutorial - Profit and Loss Statement Explained
(Learn to Invest - Investors Grow)
5. Income Statement Simplified - Create your income statement in Excel
(Indzara Excel Templates)
6. How To Prepare An Income Statement (with Income Statement Template & Best Accounting Software)
(Business Finance Coach)
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