It has been some time of studying some bookkeeping lessons for this A.Y. 2016-2017. I tried and I am still trying my best to do all the records being required for the subject so that I would be successful and credible enough in sharing with you guys my thoughts and could be my feelings as well about certain topics or lessons. In this blog, we will take a look on income statement, the financial report that lets us know how much money a company is making.

 

I think of income statements like any budget that summarises the income or revenue and expenses. According to Nelson Smith, a Canadian bookkeeper, income statement, also as ‘Statement of earnings’ or ‘profit and loss statement’, records the revenues earned and expenses incurred during an accounting period.

 

Starting off at the top is the total revenue or the gross profit on sales (net sales minus net purchases). Revenues are the income earned from sales of goods and services. Next to it is the company's cost of sales. These are all the operating expenses including costs of taxes and licences, salary and wages, advertising expense, freight-out, etc. If you subtract gross profit on sales from the costs of doing business, you'll get either the net profit or loss from operation. It will be net profit if the gross profit on sales is greater than the operating expenses or if the difference from the subtraction is positive while it will be net loss if the operating expenses are greater than the gross profit on sales or of the difference from the subtraction is negative. Operating expenses, on the other hand, are called indirect costs as they cannot be directly tied to the production of the good. However, they are expenses that directly emanate from the business operations.

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To help you better understand income statement, here are some great resources that you can freely look into. The pictures below will link you to another reliable sources by just clicking them.