An income statement is a financial report that shows a company’s profit and loss over a period of time, usually a quarter or a year. It shows how a company’s revenue (sales or income) is transformed into net income (profit or loss) by subtracting all expenses from both operating and non-operating activities. It also complements the balance sheet and the cash flow statement by showing how income is generated and affected by various business activities.

The income statement is divided into several sections:

• Revenue/Sales: This section shows the amount of money earned by a company from selling its products or services, or from other sources such as interest, dividends, royalties, etc. It is displayed at the very top of the statement.
• Cost of Goods Sold (COGS): This section shows the direct costs associated with producing or acquiring the goods or services sold by the company, such as materials, labor, overhead, etc. It is subtracted from revenue to get gross profit.
• Operating Expenses: This section shows the indirect costs incurred by the company to run its business, such as selling, general and administrative expenses (SG&A), research and development (R&D), depreciation and amortization, etc. It is subtracted from gross profit to get operating income.
• Non-Operating Expenses/Income: This section shows the expenses or income that are not related to the core business operations of the company, such as interest expense, interest income, taxes, gains or losses from investments, extraordinary items, etc. They are added or subtracted from operating income to get net income.

There are two formats of presenting an income statement: the single-step format and the multi-step format. The single-step format simply lists all revenues and gains together, and all expenses and losses together, and calculates net income by taking the difference. The multi-step format separates operating and non-operating activities and shows intermediate subtotals such as gross profit and operating income². Most companies use the multi-step format because it provides more information and analysis for users.

If you want to learn more about income statements, you can check out these sources:

1 https://www.investopedia.com/terms/i/incomestatement.asp 2 https://corporatefinanceinstitute.com/resources/accounting/income-statement/ 3 https://online.hbs.edu/blog/post/how-to-prepare-an-income-statement.