20 years: Chartered accountant & educator
The income statement shows an entity’s sources of revenue, expenses incurred and the resulting profit or loss for the period, usually one year. In the fourth video of this series, Saket highlights what is included within the income statement, and the different ways of presenting the information.
The income statement shows an entity’s sources of revenue, expenses incurred and the resulting profit or loss for the period, usually one year. In the fourth video of this series, Saket highlights what is included within the income statement, and the different ways of presenting the information.
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6 mins 24 secs
The income statement shows an entity’s sources of revenue, expenses incurred and the resulting profit or loss for the period, usually one year. It is also referred to as the Statement of Financial Performance. There are different formats for presentation of revenue and expenses.
Key learning objectives:
Outline the items of income and expenses presented in the income statement
Understand how the profit or loss figure is arrived at
Identify the different presentation formats of the income statement
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The top line in the income statement is the revenue earned by the entity. It is also referred to as turnover or sales. There are direct costs and general overheads incurred in earning the revenue, and these are shown as part of the expenses. The most common income statement items include:
Finance income or gain on sale of assets are shown as separate line items as they do not form part of the normal operating activities of an entity.
The net profit or loss figure, also referred to as net income is arrived at by deducting total expenses from total revenue.
The income statement may also show gross profit (revenue less cost of sales) and operating profit which is the earnings from the day-to-day operating activities of the entity.
The income statement may also be presented in another format where all items of revenue and other income are shown together as also all of the expenses. The expenses are classified by nature rather than function.
Banks generally present information about income and expenses in a different format to provide more relevant and reliable information about net interest income or margin.
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